Wednesday’s Dairy pay-out to keep pressure on Kiwi

Wednesday’s Dairy pay-out to keep pressure on Kiwi

By Garry Dean (Sales Trader, CMC Markets New Zealand)

Last week we saw dairy prices at Fonterra’s Global Dairy Trade auction slump a further 1.8%, taking the overall decline to around 23% over the past seven auctions. It’s therefore not surprising that the market is expecting Fonterra on Wednesday morning to announce a reduction in its forecast payment for the current season from NZ$8.65 per kilo to around NZ$8.40, and to potentially drop the opening level for next season to around NZ$7.00. With dairy accounting for 30% of New Zealand’s merchandise exports, a number below NZ$7.00 should keep the currency under further pressure.

Kiwi is trading currently around 0.8550, and on the week is expected to encounter buying interest in the key 0.8500 – 0.8515 support window, with resistance seen on any advance towards 0.8600. Last week saw failed attempts to regain the 0.8600 handle, despite a rally in risk assets following a string of solid Manufacturing PMI numbers from China, Japan and the US, as well Fed minutes which reaffirmed the FED’s accommodative stance. Short-term bullish RSI divergence is noted in the Kiwi currently, but the trader market seems comfortable selling into strength at present, suggesting rallies on the week may struggle to extend much beyond 0.8600.

Traders are looking towards the 12 June MPS, and questioning the extent to which the RBNZ will track further rate rises going forward. The continued slump in dairy prices, a fall in consumer confidence, and a continued cooling in the housing market will likely see Governor Wheeler rein in some of the 200pts of rate hikes over two years he indicated at the March MPS. He will be encouraged by the fact the RBNZ June Quarter Survey of Expectations showed inflation expected to be at 2.08% in a year’s time, up only slightly from the previous survey. Also encouraging is the sharp fall in people expecting house price gains in the next 12 months – down to its lowest level since September 2012. With Consumer Confidence having slumped 4.4% in May, the market will watch Wednesday’s Business Confidence numbers to see if that weakness is reflected there also.

Ends

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