NZ dollar gains after Fonterra raises payout forecast, Guoxin commits to Christchurch investments

Thursday 24th September 2015

The New Zealand dollar rose after Fonterra Cooperative Group lifted its forecast payout to farmers, reducing the prospects of the rural sector slowing the economy, and after China's Guoxin International Co committed to raising some $3 billion to invest in the rebuild of Christchurch.

The kiwi rose to 62.91 US cents as at 5pm in Wellington, from 62.63 cents late yesterday. The trade-weighted index rose to 68.67 from 68.19 immediately before the Fonterra announcement and from 68.25 yesterday.

Fonterra chairman John Wilson said a stronger performance in the second half was continuing into the current year and the cooperative raised its forecast farmgate milk price to $4.60 per kilogram of milk solids from a decade-low $3.85/kgMS, projecting a total payout including per-share earnings of $5-to-$5.10/kgMS for the 2015/16 year. Dairy products are the nation's biggest export and the fortunes of rural communities tend to rose and fall with farmer incomes, feeding into the wider economy. Guoxin's investment plans had also lifted sentiment, traders said.

"Sentiment for the kiwi has been positive for the past couple of days" on the Guoxin announcement and Fonterra's payout forecast," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong. The kiwi has been strong at a time risk appetite in the foreign exchange market is "somewhat limp."

Still, the bias is still for a lower New Zealand dollar, "that is predicated on the US dollar rally continuing," she said. "Clearly there are question marks on the timing of a Fed rate hike" which is now expected in December.

Meanwhile, "we're still looking for the Reserve Bank of New Zealand to cut rates further - which is arguably priced in already," Trinh said. "We really need to see further weakness in the domestic economy and in trading partner growth to back that up."

The kiwi didn't move much after government figures showed New Zealand’s trade deficit widened in August to $1.04 billion from a shortfall of $465 million a year earlier, mainly driven by one-off imports of aircraft, which offset stronger international meat sales that drove export growth to a record for the month.

The local currency rose to 89.93 Australian cents from 89.05 cents yesterday, gained to 75.58 yen from 74.99 yen and rose to 41.26 British pence from 40.80 pence. The local currency rose to 4.0148 yuan from 3.9958 yuan, and was little changed at 56.23 euro cents from 56.21 cents yesterday.

The two-year swap rate rose 1 basis point to 2.68 percent. The five-year swap rate rose 3 basis points to 3.02 percent and 10-year swaps rose 3 basis points to 3.52 percent.

BusinessDesk.co.nz

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