NZ dollar drops below US80c as commodity prices slip

Photo / Dean Purcell

The New Zealand dollar fell below 80 US cents against the greenback, as a correction in global risk appetites saw the price of raw materials slip for a second day, dragging equity markets lower.

Wall St's Standard & Poor's 500 Index shed 0.5 per cent to 1,354.37, led lower by a dip in global commodity prices as traders trimmed their long positions, where they bet an asset will gain in price. Silver led the charge lower with the precious metal recently trading at US$41.72, down from US$44.73 yesterday.

The Thompson Reuters Jefferies CRB Index, a measure of 19 commodities, fell 0.8 per cent to 3.65.05. That saw demand for commodity linked currencies, such as the kiwi and Aussie dollars, fall.

"We've been in correction mode now for the last 24 hours or so on the back of global risk markets," said Imre Speizer, a market strategist at Westpac Bank.

"The catalyst that caused this bout of profit taking was the decline in precious metals, mainly silver, and it may be a signal that other risk markets will start to correct," which is weighing on the kiwi dollar, he said.

The kiwi recently traded at 79.83 US cents, down from 80.27 cents yesterday, and fell to 68.03 on the trade-weighted index of major trading partners' currencies from 68.35.

It dropped to 73.61 Australian cents from 73.75 cents yesterday, and fell to 64.71 yen from 64.96 yen. It declined to 53.88 euro cents from 54.29 cents, and fell to 48.47 pence from 48.40 pence previously.

The price of milk powder was little changed for a second straight sale in Fonterra's latest online auction. Prices fell 0.1 per cent on average to US$4,367, according to results posted on the globalDairyTrade auction website. That follows a 0.1 per cent gain in the last auction on April 19.

The Reserve Bank of Australia kept the cash rate unchanged at 4.75 per cent yesterday, as expected, and said its high currency will help constrain prices for some consumer products and restrain the traded sector. Inflation was 1.6 per cent in the first quarter, outpacing market expectations.

US manufacturing data for April came in weaker than expected, with the Institute for Supply Management's manufacturing index at 60.4 for the months, down from the 61.2 reading in March, its lowest level in four months.

The kiwi may trade between 79.70 US cents and 80.60 cents, Speizer said, with any moves below the support level likely to signal further corrections in the currency.