SYDNEY/WELLINGTON: The New Zealand dollar took a double knock on Wednesday after the nation's monthly trade deficit widened to a five-year high and dairy giant Fonterra warned of weak earnings, which also weighed on the Australian dollar.
The New Zealand dollar slipped as far as $0.8237, from $0.8276 in early trade, having already skidded more than 1 percent on Tuesday. It has lost more than two cents since hitting a 4-1/2-month high of $0.8445 on Monday.
It was also sharply lower against the euro, yen and the Australian dollar. Still, the kiwi is up nearly 7 percent so far this month, its best monthly performance since mid-2009.
The kiwi's broad retreat weighed on the Australian dollar which last stood at $0.9391, from around a peak of $0.9428 on Tuesday.
It reached a three-month high of $0.9530 last week with charts showing the currency's inability to hold above $0.9500 to be bearish. Support was seen at $0.9345 with a break targeting $0.9285, the 38.2 percent retracement of the $0.8893-$0.9530 move
The kiwi's move was apparently sparked by a warning by Fonterra that earnings in the first half of its financial year would be significantly lower than a year earlier.
Dairy is a major export earner for New Zealand, accounting for around 7 percent of annual GDP.
However, Fonterra also issued a strong forecast for milk prices which suggested dairy revenues could be up 52 percent this season.
"This improvement in dairy revenue could equate to around 2.5 percent of GDP, meaning the New Zealand economic growth outlook for the year ahead looks even more positive," wrote ANZ in a note.
Later, the kiwi took another hit after data showed New Zealand's annual trade deficit widened to an unadjusted NZ$2 billion, against forecasts of NZ$1.62 billion.
Still, after seasonal adjustment the deficit actually narrowed to NZ$465 million in August, with exports up 2.1 percent and imports down 2.6 percent.
Against a currency basket, the kiwi was at 76.98, not far from a post-float high of 79.39 hit in April.
Many in the market expect the kiwi to trade above $0.8000 for the remainder of the year, and see the possibility of a climb towards $0.8400 on an improving economic outlook and an anticipated interest rate hike next year.
Technical support was seen at $0.8181, its 200-day moving average, and below that at $0.8173, the 50 percent retracement of its April-August sell-off. Offers above $0.8300 were seen capping any gains in the near term, traders said.
New Zealand government bonds edged up, pushing yields 1 basis point lower across the curve.
Australian government bond futures were a touch firmer with the three-year bond contract up 1 tick to 97.060. The 10-year contract added 1.5 tick to 96.055.
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