90 seconds at 9 am: NZD at 6-year low against US and China

Dire dairy prices weigh down on NZD prompting rate cuts; Greek bailout in sight; momentum in US economy; UST 10yr yield 2.36%; oil and gold low; NZ$1 = 65.1 US¢, TWI-5 = 69.9

17th Jul 15, 7:48am by Jenée Tibshraeny

Here's my summary of the key issues over night that affect New Zealand, with news the New Zealand dollar's the weakest it's been against the US dollar and Chinese yuan in six years.

You now only need 4 yuan to buy a New Zealand dollar. A year ago you needed 5.5 yuan. This 25% appreciation of the Chinese currency may help explain why New Zealand is such an attractive place for the Chinese to invest.

China’s Cabinet has pledged to keep the yuan exchange rate “basically stable” against the US dollar after talk the country’s stock market retreat threatens devaluing the currency.

Europe is re-opening funding to Greece, after Athens yesterday agreed to implement the tough reforms required to secure a bailout deal.

The European Central Bank has increased emergency funding for Greek lenders, and the European Union has approved 7.6 billion euros in bridging loans to keep Greece afloat and allow it to clear some of its debts.

The loans will be finalised later today provided Germany's parliament is happy to open talks on a three-year bailout programme; Greece's third in five years, worth up to 86 billion euros.

The latest figures out of the US show there’s underlying momentum in the economy. The number of Americans filing new applications for unemployment benefits fell more than expected last week and confidence among homebuilders held at a more than 9.5-year high in July.

The solid labour market and firming housing sector, suggest the economy is likely to be strong enough to support an interest rate hike this year.

In New York, the UST 10yr yield benchmark remains at 2.36%.

New Zealand wholesale rates fell sharply yesterday, as news of the disastrous GlobalDairyTrade auction sunk in. Expectations for a rate cut next Thursday are rising.

Commodity prices remain in a slump, following an announcement earlier this week that Iran's huge oil and gas reserves will be re-opened to Western companies. The US benchmark oil price remains at US$51/barrel, and Brent crude is at US$58/barrel.

The gold price is unchanged today at US$1,145/oz.

Yesterday’s dairy auction has also weighed heavily on the New Zealand dollar. It’s down a cent against the US, from this time yesterday, to 65.1 US¢, and down more than a cent and a half against the Australian, to 87.9 AU¢. It remains at 60.3 euro cents.

The dollar has weakened by 2.5¢ against the Australian and 2¢ against the Greenback this week.

The TWI-5 has slipped to 69.9 its lowest level in three years.

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

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

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Source: RBNZ

Source: CoinDesk

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10 Comments

by MortgageBelt | 17th Jul 15, 7:59am 1437076790

Perhaps the only question for next week is: will the rate cut be .25 or .5?
Which may bring floating rates to 6.15 or 5.9%

by PeterPen | 17th Jul 15, 8:12am 1437077576

And that will increase the milk powder price then? Wow! I guess as good patriots we all need to get a loan now to buy a few tons of the stuff and keep it in the garage.

by Andrewj | 17th Jul 15, 8:33am 1437078789

Think of all the buyers who brought forward contracts, they must be taking a hiding.

by sharetrader | 17th Jul 15, 8:03am 1437077037

it will be .25 the RBD are very conservative

by PeterPen | 17th Jul 15, 8:11am 1437077481

"The loans will be finalised later today provided Germany's parliament is happy to open talks on a three-year bailout programme; Greece's third in five years, worth up to 86 billion euros."

Nope. "Gifts", not "loans". In addition there are another 17 creditor countries, some signficantly poorer than Greece, whose nomenclatura needs to sign money transfer 3 of N into the corrupt bottomless pit. In return Greece promises so-called reforms, largely the ones it promised before and did not deliver on. One of the great travesties of our time.

Why all this? Because France and Italy run economies similar to the Greek one and do not want to be disturbed by petty, undemocratic things like fulfilling contractual obligations. Italian and French elites view money as a printable means of politics and not a reliable store of value for their citizens.

A bit of background would be good around here, btw. I mean other than repeating Krugman's pathological calls for unlimited money printing and unconditional money transfers to Communist governments.

by scarfie | 17th Jul 15, 10:10am 1437084652

The decision by Greece really goes to highlight that politicians are of the same ilk anywhere in the world. They are incapable, and unwilling, to make the decisions they were elected to make. The lesson to learn in New Zealand, if it isn't already apparent from TPPA and offshore buyers of real estate, is that the pollies will sell yours, and your childrens, future simply because they can't actually see the consequences in their myopic understanding of economics and finance. Maybe their are corrupt also, but I actually think they are too stupid for that.

by Smalltown | 17th Jul 15, 11:50am 1437090631

Poor ol Kiwi pollies stagger from one 3 year election to the next so they have a very short term mentality. Look at National's housing and immigration policy for obvious examples - no care as to the consequences way down the road. China on the other hand has always taken the Long Plan. Decades - doesn't matter.
We don't stand a chance.

by notaneconomist | 17th Jul 15, 10:32am 1437085964

I often feel that interest.co.nz gives a very positive spin on the US....is it wishful thinking?

http://video.cnbc.com/gallery/?video=3000398011

http://video.cnbc.com/gallery/?video=3000397814
http://video.cnbc.com/gallery/?video=3000398106

Most economies in the West are only stumbling along and that is with low interest rates......any Central Bank who raises their OCR to soon is going to cause a slump......in fact I am starting to think that low interest rates may be here to stay for quite a long period of time.

The more indebted the system is the less there is for discretionary spending.....so the system is highly sensitive to rate moves.
Governments refusing to trim the excesses out of the bureaucracies and none of them can deliver efficient and effective services.... is an enormous issue....the system cannot keep up with the spending and borrowing here.

We are all in trouble when we can't get rid of debt and when the biggest debt is in your Government we all end up to far away from the breakeven point and the effects of being in negative territory compound......Wheeler has reminded the world's Central Banks of the compound effect when in negative territory.....hence Central Bankers will be highly cautious.

The reasons the economic clock goes into the slump position after rising interest rates is a well known phenomena !!

by The best statu… | 17th Jul 15, 10:38am 1437086323

I have My company I woek for fixed at 0.74, lasts until Nov, happy days and margins.

by happyatwork | 17th Jul 15, 10:40am 1437086411

How come one week we have headlines like "The latest figures out of the US show there’s underlying momentum in the economy. " and the next week its the complete opposite?

Mind you give me any figures and I can spin them both ways as well!