Seventh fall in a row for diary prices, down a further 1.8% in this morning's auction

by Kymberly Martin

NZ Dollar

The NZD sits a little lower this morning, at 0.8580.

Overnight, the latest Global Dairy Trade auction showed a further 1.8% decline in average prices, from the last event a fortnight ago. This comes on the back of six consecutive falls at auction that had already taken average prices to 21% below their early February levels.

These moves will be closely watched by the RBNZ. It will be increasingly uncomfortable with a NZ TWI that holds up near its highs while NZ commodity prices come off the boil. That said, the NZ TWI sits a little lower this morning, at 79.90, having softened relative to the USD and most of the crosses overnight.

Most notably the NZD weakened relative to the JPY and GBP. The NZD/JPY now sits at 86.80, its lowest level since mid-March. Meanwhile the NZD/GBP drifted steadily lower overnight, assisted by UK CPI releases (see Majors), to sit at 0.5090. Key support is now seen at the late April lows of 0.5060.

By contrast, the NZD/AUD strengthened slightly over the past 24-hours, though largely range-bound overnight. The diverging monetary policy outlooks on either side of the Tasman were highlighted yesterday as the RBA’s minutes confirmed it would be on hold for “some time yet”. The NZD/AUD sits at 0.9260 this morning.

Today, NZ credit card billings and net migration figures will be released. The next strong band of support for the NZD/USD lies between 0.8500 and 0.8520. Resistance will likely be encountered approaching 0.8640.

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

----------------------------------------------------------

Majors

While the USD index flat-lined over the past 24-hours, the JPY and GBP outperformed and the AUD and NZD underperformed.

Overnight, equity markets on both sides of the Atlantic were slightly softer. The S&P500 is currently down around 0.80% while the Euro Stoxx 50 closed down 0.20%. Still, our global risk appetite index continues to cling on at a fairly healthy 73% as market volatility remains low.

The key data releases overnight were the suite of UK pricing indicators. In a mixed set of numbers overall, April core CPI (2.0%y/y vs. 1.8% expected) stood out. After some initial volatility surround the data releases, the GBP/USD made steady gains overnight. It sits at 1.6840 this morning.

The JPY also strengthened steadily against the USD, ahead of today’s Bank of Japan meeting. Governor Kuroda is also scheduled to speak. Consensus does not expect the BoJ to make any further easing announcements at this meeting. However the BoJ will be increasingly uncomfortable as the JPY sits near the top of its year-to-date range relative to the USD. This will only make the Bank’s elusive inflation target harder to achieve.

The AUD was on a steady downward path from yesterday afternoon. The release of the RBA’s minutes from its May meeting confirmed the Bank is comfortably ‘on hold’. AU GDP growth is seen below trend in coming quarters, while labour market improvements will be slow. The minutes concluded that “the current accommodative stance of policy was likely to be appropriate for some time yet”. The AUD/USD sits at 0.9250 this morning.

Today, there are a number of 2nd tier data releases across the Tasman, including Westpac consumer confidence and the wage cost index. Tonight, the Bank of England releases its most recent minutes. Fed speakers are also out in force, including Fed Chair, Yellen. Finally, early tomorrow morning (NZT) the US Fed will release the minutes from its April FOMC meeting.

All its research is available here.