NZ Dollar Outlook: Kiwi may decline as reduced dairy payout hurts sentiment
By Tina Morrison
May. 26 (BusinessDesk) - The New Zealand dollar may decline this week as weaker dairy prices are expected to see
Fonterra Cooperative Group pull back its forecast payout to farmers.
The local currency may trade between 84.30 US cents and 86.50 cents this week, according to a BusinessDesk survey of 10
traders and strategists. Seven predict the kiwi will fall this week, while three expect it to increase. It recently
traded at 85.32 US cents.
Reserve Bank governor Graeme Wheeler told a dairy farmers' conference in Hamilton this month that the local currency was
overvalued and the central bank may intervene in the market to sell New Zealand dollars, should the kiwi remain high
while commodity prices fall. Dairy prices at Fonterra’s GlobalDairyTrade auction declined for the seventh time in a row
last week, fuelling speculation the world’s biggest dairy exporter will reduce its forecast payout to farmers on
Wednesday following its monthly board meeting.
ANZ Bank New Zealand, the nation's largest rural lender, expects Fonterra may pull back its current forecast for a
record payment of $8.65 per kilogram of milk solids by 20 to 30 cents and set its opening level for the coming season
below $7 in response to the lower prices.
"The main theme this week will be the milk price payout which is a proxy for our global dairy industry," said Sam Tuck,
senior foreign exchange strategist at ANZ in Auckland. "For the New Zealand dollar, it's not as good as we might have
previously supposed so that might take a bit of the cream off the New Zealand dollar as well as the milk price."
The kiwi may test its support level of 85 US cents this week, which would mark its lowest level since the Reserve Bank
started hiking interest rates in March, Tuck said. "Offshore markets are looking for reasons to sell New Zealand
dollars," he said.
Still, the kiwi will probably continue to remain attractive to investors beyond this week because of its higher yield on
the expectation the central bank will hike rates for a third time at its next review on June 12, and potentially leave
the door open for another rise in July.
"We are not expecting it to fall out of bed," Tuck said.
The week will probably start on a quieter note as US financial markets are closed for the Memorial Day holiday today
while the UK has a bank holiday.
This afternoon, the central bank will release its April data on low equity bank mortgage lending.
Tomorrow, the New Zealand Institute of Economic Research publishes its quarterly predictions. On Thursday, the Reserve
Bank releases details of its foreign currency assets and liabilities for April, which would indicate if it has been
active in the currency market, while Finance Minister Bill English will give a post-budget speech to the Hutt Valley
Chamber of Commerce.
On Friday, April data on building consents and household credit are released while the ANZ publishes its latest business
confidence survey.
Elsewhere this week, Japan will publish data on April inflation, the US has first quarter GDP, Australia has capital
expenditure data, a key indicator of how the transition from mining investment to other forms of business investment is
progressing, and China has manufacturing PMI.
(BusinessDesk)