Dollar slips as Fonterra milk price dips

Wednesday 6th January 2010

The New Zealand dollar slipped as the price of whole milk powder on Fonterra Cooperative Group's online auction site dipped to more closely align with economic fundamentals.

The price of whole milk powder fell 7% to US$3,309 per metric ton according to Fonterra's globalDairyTrade website, the first decline in six months, as dairy prices ease from their peaks after surging some 95% from a low in July.

The kiwi dollar lost about 20 basis points after the announcement and Bank of New Zealand currency strategist Danica Hampton expects the currency will also be more closely aligned to economic fundamentals this year after investors weathered the global financial crisis by following sentiment.

"Currencies like the kiwi will perform strongly in the first half of the year before they run out of steam - the peak in dairy prices will help cement that idea," Hampton said.

Looking into 2010, "economic fundamentals and diverging growth prospects" should play a bigger role as markets move away from the "risk on-risk off mentality" of last year, she said.

The kiwi dipped to 73.37 U.S. cents from 73.65 cents immediately before the Fonterra announcement and traded at 73.46 cents yesterday.

It was little changed at 66.77 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, and slipped to 67.29 yen from 67.48 yen yesterday.

The kiwi rose to 51.00 euro cents from 50.92 cents yesterday and rose to 45.91 pence from 45.76 pence, and climbed to 80.51 Australian cents from 80.32 cents yesterday.

Hampton said the currency may trade between 72.80 U.S. cents and 73.70 cents today as it "minced sideways," though she expects the "New Year optimism will run a bit longer with the New Zealand dollar in relatively good shape."

With global equities mixed, currency markets are waiting for the release of the Federal Open Market Committee minutes tomorrow and American unemployment data on Friday.

Businesswire.co.nz

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