NZ dollar follows dairy price fall


The New Zealand dollar is struggling this morning, following another disappointing global dairy auction, and one economist says this is the right trend.

Prices fell 2.8 percent at the GlobalDairyTrade auction and are now 33 percent below where they were a year ago.

The Kiwi was trading at 65.60 US cents this morning while also sitting at 92.45 Australian cents.

Currency strategists at BNZ say the Kiwi has been the weakest performing currency in the past 24 hours, but economist Michael Riddell says the NZ dollar needs to weaken if we want our dairy sector to bounce back.

"The Government continues to make the point that our exchange rate is extremely high. One of the things that hold it there is his monetary policy.

"The only reason foreigners hold New Zealand dollar assets is because we offer a higher yield than the rest of the world. If you narrow that gap then it becomes less attractive."

He says while this may make it less appealing for Kiwis to travel, or purchase goods from overseas it'll mean farmers will receive a better rate for the same amount of product.

The Kiwi fell around one cent yesterday against the US dollar following the release of the Reserve Bank's latest inflation expectations survey. The survey showed that firms' inflation expectations have fallen to their weakest levels since 1994.

This has raised the prospect of another interest rate cut, perhaps as soon as next month.

Listen to the full interview with Michael Riddell above.