The Kiwi Dollar found support overnight bouncing off 2 year lows, helped by comments out of China addressing recent weakness in the Yuan. PBoC Governor Yi Gang said that China will keep the Yuan exchange rate basically stable at a reasonable and balanced level. This saw the CNY gain around 1% after struggling recently. The NZD has pretty much followed the path of the CNY over the past few weeks, so stability in the Yuan perhaps provides hope that the relentless selling pressure on the NZD might now take a break.
Last night’s global dairy auction has seen prices in US dollars down a bit over -5%. In New Zealand dollars however prices are down about -3% as the lower exchange rate has cushioned the drop. The fall in prices had surprisingly little impact on the NZD as it held firm on the back of the positive CNY comments out of China. Yesterdays business confidence survey had earlier put more pressure on the NZD. The survey showed business confidence falling to a 7-year low, with the market putting more weight on the soft activity indicators than the survey’s evidence of rising inflationary pressure.
The Reserve Bank of Australia kept interest rates at record lows of 1.5% for the 21st straight time as the central bank conceded that the economy needs the low cash rate in order to meet its growth and inflation targets. The NZD/AUD rate begins the day at similar levels to yesterday as the AUD also benefitted from the positive comments out of China. There will be much interest in this afternoons release of AUD Retail Sales and Trade Balance data.
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