NZ dollar eases to one-week lows, bonds firmer

WELLINGTON, July 2 - The New Zealand dollar <NZD=> fell to one-week lows on Thursday, weighed down by lower prices for the country's key dairy exports and maturing kiwi-denominated bond issues.

The kiwi settled around $0.6380/87 at 0445 GMT, its lowest since June 25, and down about 1 percent on previous day as an offshore sell-off extended into local session.

The fall came despite mainly stronger stock markets in Asia, tracking gains on Wall Street.

"The kiwi tends to be closely correlated with the share market. It was the first time in a while that we have seen the kiwi de-link from equities," said ANZ-National senior markets economist Khoon Goh.

"That could be a sign the currency market is starting to look at the kiwi more in terms of domestic factors," Goh added.

Fonterra, New Zealand's biggest company generating more than 7 percent of its gross domestic product, said dairy prices fell for the third month in a row at its latest auction. [ID:nWEL508383]

That could be a further drag on the already recession-hit domestic economy, while investors are also concerned about some NZ$4.5 billion in maturing kiwi uridashi and eurokiwi bonds this month

"There's certainly a lot of talk now and a greater awareness about the big redemption profile for this month," Khoon said.

The kiwi is vulnerable if investors decide to repatriate their investments rather than re-invest them in kiwi assets. [ID:nWEL46118]

The U.S. dollar edged up from close to three-week lows on Thursday as the market awaited monthly jobs figures as a guide to recovery in the U.S. economy, but also kept a watchful eye on debate about reserve currencies.

The greenback had fallen on Wednesday, partly on comments from G8 sources that China had asked to discuss proposals for a new global reserve currency at next week's Group of Eight meeting in Italy. [ID:nL1293071]

Interest rate swaps were steady across the curve, after declining about two to three basis points earlier. Two-year swaps <NZDSM3NB2Y=> were bid at 3.71 percent and five-year <NZDSM3NB5Y=> at 5.23 percent.

New Zealand government debt prices were firmer, with the yield on the benchmark NZ 10-year bond <NZ10YT=RR> four basis points lower at 5.87 percent.