NZ dollar heads for 12% decline in 2015 on dairy, China

NZ dollar heads for 12% decline in 2015 on dairy, China, may fall further

By Jonathan Underhill

Dec. 31 (BusinessDesk) - The New Zealand dollar is heading for a 12 percent annual decline after weathering weaker dairy prices and concerns about slowing Chinese economic growth, and may extend its slide in early 2016 as US growth comes into view.

The kiwi fell to 68.41 US cents at 3pm in Wellington from 68.56 cents late yesterday. The trade-weighted index slipped to 74.27 from 74.40 yesterday and is heading for an annual decline of about 6 percent.

The year's selloff in the kiwi came as prices of dairy products fell to their lowest levels in six years in August, on the GlobalDairyTrade platform and on concern demand from China was waning in the face on increased supply, especially from Europe. Prices revived somewhat in the second half of the year. The kiwi has also strengthened somewhat heading into the end of the year, even though the Reserve Bank cut its benchmark interest rate to 2.5 percent, while the Federal Reserve raised rates for the first time in almost a decade.

"The kiwi has been driven down this year by weakness in China, the big drop in dairy prices," said Angus Nicholson, market analyst at IG Markets in Melbourne. "Once prices started to spike up again, a huge amount of speculative money has flowed back into the kiwi."

The New Zealand dollar has been "somewhat resilient in the face of US dollar strength" amid signs that the domestic economy was on a firmer footing, business and consumer confidence were reviving and dairy prices were firmer. The New Zealand economy would benefit from the kiwi falling back to within a range of 64 US cents to 66 US cents, he said.

The first test of the kiwi in 2016 may be with US non-farm payrolls on Jan. 9, where the expectation is that the world's biggest economy stacked on another 200,000 jobs in the latest month, Nicholson said.

The bond market was expecting the next Fed rate hike in April and any signs of US economic strength confirming an April move, is likely to weigh on the New Zealand dollar in the first quarter.

"A drop below 66 US cents does seem quite likely," Nicholson said.

The New Zealand dollar fell to 93.78 Australian cents from 94.11 cents yesterday, dropped to 62.62 euro cents from 62.73 cents, weakened to 46.15 British pence from 46.23 pence, declined to 82.39 yen from 82.58 yen, and slid to 4.4416 yuan from 4.4497 yuan.

The two-year swap rate fell 1 basis point to 2.83 percent and the 10-year swaps fell 1 basis point to 3.73 percent.

(BusinessDesk)

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