NZ dollar pares gain as US talks grind on, local trade figures loom

Photo / NZ Herald

The New Zealand dollar pared gains from a new post-float high as policy-makers in the US struggle to agree on terms for the world's biggest economy to lift its debt ceiling.

Democrat and Republic members of the US House of Representatives have put forward rival proposals to lift the nation's US$14.29 trillion Federal government borrowing cap and prevent a potential credit rating downgrade and repayment default.

Meantime, Moody's Investors Service cut Greece's debt rating to Ca, its second-lowest. That kept investors largely nervous about seeking higher-yielding, or riskier, assets, and the New Zealand dollar drifted off a fresh high of 86.76 US cents.

"Overnight, the global backdrop was one of a modest pullback in risk appetite," said Kymberly Martin, strategist at bank of New Zealand. "Moody's further downgraded Greece's debt rating, and the laborious negotiations over the debt ceiling continue in the US.

The kiwi was little changed at 86.45 US cents from 86.41 cents yesterday, and recently traded at 73.97 on the trade-weighted index of major trading partners' currencies from 73.99.

It edged up to 67.67 yen from 67.59 yen yesterday, and fell to 79.67 Australian cents from 79.89 cents. It recently traded at 60.15 euro cents from 60.17 cents yesterday, and was little changed at53.07 pence from 53.03 pence.

New Zealand probably widened its annual trade surplus to $1.2 billion in the year ended June, according to a Reuters survey, and any signs of weaker demand for locally produced products will sap demand for the kiwi dollar. That comes ahead of Reserve Bank Governor Alan Bollard's review of the official cash rate on Thursday, which will likely see the benchmark interest rate stay on hold at 2.5 per cent.

Tim Kelleher, head of institutional FX sales New Zealand at ASB Institutional said the currency may trade between 86.25 US cents and 86.75 cents today with the trade figures likely to show how dairy exports are tracking. In recent month, the price of milk powder has declined on Fonterra's online trading platform.

"At this time of year, agricultural exports are quite low, but the last time we had the dairy numbers, they fell a lot, and that's the number we'll be looking at," Kelleher said. "If the volume is significantly lower, with the 20 per cent fall in price since May, that's got to see the Fonterra pay-out in jeopardy for the coming season."