Kiwi Slides as Trade Deficit Widens, Fonterra Earnings Decline

New Zealand’s dollar slid against all of its 16 major counterparts, extending yesterday’s biggest decline this month against the greenback, after a government report showed the country’s trade deficit unexpectedly widened.

The kiwi dropped to its lowest in a week against the U.S. dollar, retreating from a four-month high reached on Sept. 19, after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said earnings shrank. Australia’s dollar sank for a second day against most major peers as the central bank said a weaker currency should support exporters. The Aussie and kiwi fell yesterday as the risk of a U.S. government shutdown cut demand for higher-yielding assets.

“The kiwi’s had a good run and in these uncertainties there’s the possibility that you’re going to see people looking to take some profit off the table,” said Chris Weston, the chief market strategist at IG Markets Ltd. in Melbourne. “A lot of these commodity currencies are perhaps a touch overbought.”

The New Zealand dollar slid 0.7 percent to 82.26 U.S. cents as of 4:45 p.m. in Sydney from yesterday, when it tumbled 1.1 percent. It earlier touched 82.22 cents, the lowest since Sept. 18. Australia’s dollar retreated 0.3 percent to 93.59 U.S. cents after falling 0.4 percent yesterday.

So far this quarter, the kiwi is up 6.5 percent against the greenback, the most among major currencies. The Aussie has gained 2.6 percent.

Trade Deficit

The trade deficit in New Zealand widened to NZ$1.2 billion ($981 million) in August, the biggest shortfall in five years, official figures showed today. The median estimate of economists surveyed by Bloomberg News was for a NZ$700 million deficit. Exports (NZMTEXP) fell to the lowest since September 2012 as dairy shipments declined 1.8 percent from a year earlier.

Fonterra said full-year earnings dropped after a drought curbed milk production. The results don’t capture the potential impact of the contaminated milk scare that erupted in early August, before tests showed that safety fears were unfounded. The company has booked a NZ$14 million provision so far, it said on a conference call after the earnings release.

Fonterra is “very comfortable” with the New Zealand dollar at current levels, Chief Executive Officer Theo Spierings said in an interview today with Bloomberg Television.

The kiwi has gained 4.1 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie is the second best performer with a 2.2 percent advance.

Kiwi Retreat

New Zealand’s dollar fell from a four-month high of 84.36 U.S. cents last week after its 14-day relative strength index rose above 75, a level that some traders see as a sign an asset has risen too much, too fast and may be due to reverse course.

“If you’re looking across the risk spectrum, the kiwi is probably still the one you want to be leveraged to,” said IG’s Weston. “We sit in a currency world where people are trying to play divergencies in the central banks. They’re going to be the first to put rates up.”

Traders see an 80 percent chance the Reserve Bank of New Zealand will raise borrowing costs from a record-low 2.5 percent by April next year, interest-rate swaps data compiled by Bloomberg show. They see a 55 percent probability the Reserve Bank of Australia will lower its cash target rate from a record low of 2.5 percent in the same period.

Benchmark 10-year Australian government bond yields fell two basis points, or 0.02 percentage point, to 3.88 percent, after earlier touching 3.85 percent, the lowest since Aug. 28.

Linker Sale

The Australian government started selling inflation-linked securities due in 22 years, seeking to extend the maturity of its debt, the Australian Office of Financial Management said today in an e-mailed statement.

The Aussie fell for a fourth day in five versus the greenback after the RBA said in its semiannual financial stability review that weakness in the currency “should provide support to some trade-exposed sectors.” It urged banks to maintain loan standards as households’ risk appetite improves.

Investors sold the Aussie and kiwi yesterday as a Sept. 30 deadline looms to prevent a U.S. government shutdown. The Senate is set to hold a test vote today on legislation passed by the House of Representatives to cover federal spending through Dec. 15, and choke off funds for President Barack Obama’s health-care law. Senate Majority Leader Harry Reid has said the Senate will pass a spending measure without defunding the health law.

“It’s five days to the end of the fiscal year in the U.S.,” DBS Group Holdings Ltd. analysts including Singapore-based senior currency economist Philip Wee wrote in a research note. “Markets are on the defensive.”

To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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