NZ dollar TWI heads for 1.4% weekly drop as RBNZ adopts easing bias, Fonterra cuts forecast

Friday 29th January 2016

The New Zealand dollar is heading for a 1.4 percent fall on a trade-weighted basis this week after the Reserve Bank's acceptance that it may have to cut rates and Fonterra Cooperative Group's downgraded forecast for the farmgate payout this season eroded investors' appetite for the kiwi.

The trade-weighted index fell to 71.05 at 5pm in Wellington from 72.08 last week, driven largely by a decline in the kiwi/Australian dollar cross-rate. The local currency was more muted against the greenback, heading for a 0.3 percent decline in the week to 64.70 US cents from 64.90 cents on Friday in New York last week. It traded at 64.69 US cents at 8am and 64.44 cents yesterday.

Nine currency advisers surveyed by BusinessDesk predicted the kiwi would trade between 63.50 US cents and 66.80 cents this week, with four expecting a gain, four picking a decline and one betting it would be little changed.

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent yesterday, while saying further reductions may be needed with inflation set to take longer to return to the bank’s target range of 1-to-3 percent. Before the OCR review, Fonterra cut its forecast payout by 45 cents to $4.15 per kilogram of milk solids as global oversupply continues to depress dairy prices.

"The Reserve Bank opened the door for rate cuts, talking about they'd like the kiwi weaker, while Fonterra lowering their payout for the 2015/16 season - that's all negative for the kiwi," said Michael Johnston, senior dealer at HiFX in Auckland. "The kiwi's certainly fallen sharply against the Aussie and there's not many reasons to be buying kiwi at the moment."

The kiwi jumped to 77.64 yen from 76.50 yen yesterday after the Bank of Japan adopted a negative interest rate policy of -0.1 percent, in addition to its quantitative easing programme in a bid to stir inflation.

HiFX's Johnston said the greenback rallied against the yen after the BoJ announcement, and that US dollar strength may spill over into other cross-rates putting pressure on the kiwi.

The kiwi fell to 91.34 Australian cents from 91.56 cents yesterday, and is heading for a 1.4 percent weekly decline against its trans-Tasman counterpart. The Reserve Bank of Australia will review its policy next Tuesday after government data this week showed higher-than-expected inflation across the Tasman.

The local currency gained to 4.2555 Chinese yuan from 4.2382 yuan yesterday, and was little changed at 59.21 euro cents from 59.14 cents yesterday. It declined to 45.02 British pence from 45.24 pence yesterday.

New Zealand's two-year swap rate decreased one basis point to 2.61 percent at 5pm in Wellington, and 10-year swaps were unchanged at 3.4 percent.

BusinessDesk.co.nz

Comments from our readers

No comments yet