Dairy prices rise sharply; RBA cuts rates to 2.25%; India loosens; US factory order fall; Greece fears bank runs; UST yields rise; oil up, gold down; NZ$1 = 72.9 USc, TWI = 76.1

Here's my summary of the key issues that affect New Zealand overnight with news of a sharp rise in dairy prices in the overnight auction.

With lower volumes offered, prices rose +9.4% overall in US dollar terms from the previous auction two weeks ago, but were up a spectacular +15.4% in NZ dollar terms due to the meaningful falls in the kiwi dollar over the past two weeks.

Leading the 'recovery' is whole milk powder prices. These were up +19.2% while skim milk powder was up +6.7% and butter up +6.1%. Cheese was down -11.1%.

These results took the average price back to where it was in August 2014, and still represents an overall price fall of more than -40% from where it was a year ago. But in 2015 prices are up +26%.

Late yesterday, the Reserve Bank of Australia surprised some in the market by cutting their cash rate target by -0.25% from 2.50% to 2.25%. This had the effect of driving down the Aussie dollar and the Kiwi with it, but we rose in the cross trade. Their cut may not be the last.

That news came as Australia posted a much lower trade deficit than expected and building approval data wasn't as bad as anticipated.

India lowered its reserve requirements overnight but kept rates unchanged.

In the US, new orders for factory goods fell for a fifth straight month in December, but a smaller-than-previously reported drop in business spending plans supported views of a rebound in the months ahead. Those market views helped the oil price rebound.

In Greece there are fears of bank runs. Depositors are doubting their banks will be supported by the ECB and are withdrawing funds, exacerbating the problems of local banks.

In New York, benchmark UST 10 year bond yields are up again today at 1.74%. That is two days in a row and it increases the chance we will see a reactive shift locally when New Zealand swap markets open.

The oil price rose again, this time more robustly, up to US$51/barrel and above US$50 for the first time in a month with Brent crude at US$56/barrel.

Gold is losing support and is down sharply to US$1,259/oz.

We start today with the New Zealand dollar at marginally lower levels. It is down to 72.9 USc, at 94.4 AUc which is a whole 1c above where it was at this time yesterday, and the TWI is now at 76.1.

If you want to catch up with all the changes yesterday we have an update here.

The easiest place to stay up with event risk is by following our Economic Calendar here »