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N.Z. Dollar Drops on China Milk Powder Reports; Aussie Up

The New Zealand dollar fell against its 16 major peers after reports that China has destroyed some milk powder imported from the South Pacific nation.

The so-called kiwi dropped versus the U.S. dollar and yen after Beijing News reported China’s quarantine administration destroyed milk powder for three different brands, citing the government agency. The currency pared losses after Auckland-based Fonterra Cooperative Group Ltd. said none of its products were destroyed. Australia’s dollar gained after the country’s central bank said an improved global outlook have spurred prices for commodities.

“This is not a case of China singling New Zealand out but the headlines are having a negative impact on the kiwi,” said Khoon Goh, a senior strategist in Singapore at Australia & New Zealand Banking Group Ltd. “This is temporary and once some clarity around this news story emerges, I expect kiwi to regain those losses.”

New Zealand’s currency fell 0.1 percent to 84.40 U.S. cents as of 4:23 p.m. in Sydney and declined 0.5 percent to 79.06 yen. Australia’s dollar rose 0.2 percent to $1.0325 and fetched 96.71 yen, little changed from yesterday.

Milk powder from brands including Vimila and Cnetirum was destroyed, Beijing News reported. Some milk powder imported from the Netherlands and Spain was also found to be unqualified, the report said.

The kiwi dollar pared losses of as much as 0.6 percent after Zhao Min, an official for Vimila’s China joint venture in Shanghai, said the report refers to the destruction of imported milk powder because of substandard labeling last year and that the milk powder itself wasn’t a problem.

Largest Market

China replaced Australia as New Zealand’s biggest export market in December for the first time in data going back to 1981, based on the smallest nation’s statistics office. New Zealand’s shipments to China surged last year, led by milk powder, butter and cheese.

Australia’s dollar rose against 14 of 16 major currencies after the RBA said prices of many metals, coal and crude oil have benefited from the better global outlook, according to minutes of the Feb. 5 meeting released today. Prices of iron ore, Australia’s largest export, have increased but have “run well ahead of Chinese steel prices” and may not be sustained at high levels, central bank board members said.

Policy makers reiterated that tame prices provide scope to ease further if needed. The bank has lowered its benchmark rate by 1.75 percentage points to 3 percent since November 2011 and this month cut forecasts for inflation and growth.

“The RBA did acknowledge the better run of international data received between the two meetings and the effect that has had on commodity prices,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. The Aussie “has caught a bid” after finding support near the $1.0250 level, he said.

The nation’s benchmark 10-year bond yields rose two basis points, or 0.02 percentage point, to 3.58 percent.

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