Dire dairy prices weigh down on NZD prompting rate cuts; Greek bailout in sight; momentum in US economy; UST 10yr yield 2.36%; oil and gold low; NZ$1 = 65.1 US¢, TWI-5 = 69.9

Here’s my summary of the key issues over night that affect New Zealand, with news the New Zealand dollar’s the weakest it’s been against the US dollar and Chinese yuan in six years.

You now only need 4 yuan to buy a New Zealand dollar. A year ago you needed 5.5 yuan. This 25% appreciation of the Chinese currency may help explain why New Zealand is such an attractive place for the Chinese to invest.

China’s Cabinet has pledged to keep the yuan exchange rate “basically stable” against the US dollar after talk the country’s stock market retreat threatens devaluing the currency.

Europe is re-opening funding to Greece, after Athens yesterday agreed to implement the tough reforms required to secure a bailout deal.

The European Central Bank has increased emergency funding for Greek lenders, and the European Union has approved 7.6 billion euros in bridging loans to keep Greece afloat and allow it to clear some of its debts.

The loans will be finalised later today provided Germany’s parliament is happy to open talks on a three-year bailout programme; Greece’s third in five years, worth up to 86 billion euros.

The latest figures out of the US show there’s underlying momentum in the economy. The number of Americans filing new applications for unemployment benefits fell more than expected last week and confidence among homebuilders held at a more than 9.5-year high in July.

The solid labour market and firming housing sector, suggest the economy is likely to be strong enough to support an interest rate hike this year. 

In New York, the UST 10yr yield benchmark remains at 2.36%.

New Zealand wholesale rates fell sharply yesterday, as news of the disastrous GlobalDairyTrade auction sunk in. Expectations for a rate cut next Thursday are rising.

Commodity prices remain in a slump, following an announcement earlier this week that Iran’s huge oil and gas reserves will be re-opened to Western companies. The US benchmark oil price remains at US$51/barrel, and Brent crude is at US$58/barrel.

The gold price is unchanged today at US$1,145/oz.

Yesterday’s dairy auction has also weighed heavily on the New Zealand dollar. It’s down a cent against the US, from this time yesterday, to 65.1 US¢, and down more than a cent and a half against the Australian, to 87.9 AU¢. It remains at 60.3 euro cents.

The dollar has weakened by 2.5¢ against the Australian and 2¢ against the Greenback this week.

The TWI-5 has slipped to 69.9 its lowest level in three years.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

Daily exchange rates

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