NZ dollar hits 2-month low as milk prices drop, Aussie edges up

[SYDNEY] The New Zealand dollar tumbled to a two-month low on Wednesday after the latest dairy auction showed milk prices had suffered heavy losses, raising doubts about a recovery in the country's No 1 goods export.

The New Zealand dollar fell for a sixth straight session to as low as US$0.6952, a level not seen since Jan 9. It was last up 0.2 per cent at US$0.6965.

The kiwi has lost more than 4.5 per cent of its value since early February. That is in part due to a resurgent greenback, which has soared on expectations of an interest rate hike in the United States as early as next week.

A dovish Reserve Bank of New Zealand (RBNZ), which has repeatedly signalled it will hold interest rates at a record low 1.75 per cent for a couple of years, has also weighed on the currency.

In addition, dairy prices were turning south again.

Wednesday's fortnightly auction showed average prices fell 6.3 per cent at the Global Dairy Trade (GDT) auction, with whole milk powder, a major export, plummeting 12.4 per cent.

"The NZD is still attempting to test lower, and the weak details of the GDT auction are unlikely to help sentiment," said Philip Borkin, senior economist, at ANZ Bank.

"For now, the NZD remains a 'sell on rallies', although the still well-performing domestic economy should limit the downside."

Elsewhere, the Australia dollar jumped to a 10-month high against its New Zealand cousin, breaking important chart resistance levels.

Against the US dollar, the Aussie inched higher although it stayed trapped in a tight band of US$0.7571/7633. It was last up 0.2 per cent at US$0.7600.

The Aussie dipped briefly after China trade figures left dealers puzzled. Yuan-denominated exports rose 4 per cent but imports surged 44.7 per cent, leaving traders wondering what the underlying picture was.

China is Australia's No 1 trading partner, while the Aussie is seen as a liquid proxy for the yuan.

New Zealand government bonds eased, sending yields two basis points higher at the long end of the curve.

Australian government bond futures slipped, with the three-year bond contract and the 10-year contract down four ticks at 97.89 and 97.1100 respectively.

REUTERS