NZ dollar falls as dairy, other commodity prices decline; RBNZ looms
By Jonathan Underhill
Nov. 8 (BusinessDesk) - The New Zealand dollar fell, reversing yesterday's gains, as prices for dairy products and other
commodities declined and traders looked ahead to tomorrow's policy statement from the Reserve Bank.
The dropped fell to 68.97 US cents as at 8am in Wellington from 69.32 cents late yesterday. The trade-weighted index
slipped to 73.34 from 73.52.
Dairy product prices fell 3.5 percent in the GDT auction, with whole milk powder falling 5.5 percent to US$2,852 a
tonne, stoking speculation that Fonterra Cooperative Group may have to lower its forecast 2017/18 payout, which it
reiterated last week at $6.75 per kilogram of milk solids plus earnings per share in a range of 45-to-55 cents. The CRB
Index of 19 commonly traded commodities fell 0.4 percent from a nine-month high. Meanwhile, tomorrow's monetary policy
statement is expected to include revised economic forecasts with the TWI well below the level projected in its last MPS.
"We downgraded our 2017/18 milk price forecast to $6.25-$6.50/kgMS last month, and at face value, today’s result
warrants some further caution," said Philip Borkin, senior economist at ANZ Bank New Zealand, in a note. "However, with
the NZD/USD down around 4 percent since the mid-October auction, it shouldn’t be forgotten that there are some other key
factors supporting the local farm-gate returns."
He expects the Reserve Bank "to still be somewhat cautious tomorrow, which could perhaps disappoint a market that is
arguably looking for a slightly more hawkish tone," he said. The kiwi had gained yesterday after Finance Minister Grant
Robertson and acting Reserve Bank governor Grant Spencer re-signed the existing policy targets agreement and Robertson
said a two-phase review is planned that will give the bank a dual mandate of employment and inflation and will also
introduce a committee-making decision model in the initial phase.
Economists are expecting the RBNZ to keep rates on hold at record low 1.75 percent. However, there is some risk it could
be more hawkish in its forecasts given the sharply weaker New Zealand dollar, emerging signs of inflation and the new
government's fiscal policy, which will also generate inflation.
Traders will also be keeping an eye on the opening of the parliament, with the governor general's "speech from the
throne" possibly containing clues to the government's policy programme.
The kiwi fell to 4.5789 yuan from 4.5915 yuan and declined to 52.42 British pence from 52.60 pence. It fell to 59.56
euro cents from 59.70 cents and dropped to 78.58 yen from 78.97 yen. It traded at 90.29 Australian cents from 90.16
cents yesterday.
(BusinessDesk)
ends