NZ dollar gains vs. pound on dovish Bank of England; Fonterra statement looms

Friday 7th August 2015

The New Zealand dollar gained against the pound after minutes of the last Bank of England meeting showed its board is more dovish than expected and sees a tamer track for inflation.

The kiwi rose to 42.22 British pence as at 8am in Wellington, from 41.84 late yesterday ahead of the Bank of England's policy review on Thursday in London. It rose to 65.52 US cents from 65.38 cents.

The pound was broadly weaker after the Bank of England left its policy rate unchanged at 0.5 percent as expected but also released minutes of its meeting that showed only one of nine members favoured raising interest rates. A separate report showed it sees inflation at 0.3 percent this year, half the pace it had previously projected. The Reserve Bank of Australia is scheduled to release its meeting minutes today, while in terms of event risk, traders are awaiting what they expected will be a downward revision to Fonterra Cooperative Group's milk payout forecast of $5.25 per kilogram of milk solids.

"We imagine that the market is braced for a figure close to $4 (kgMS)," said Raiko Shareef, currency strategist at Bank of New Zealand. "A print at $4.25 or above will likely see further gains for NZD, and perhaps a sustained break of important resistance at 0.6580. Anything below $4.00, and we will likely see another test of 0.65."

Fonterra's board is expected to cut the forecast payout to farmers after global milk prices have extended their slump this year, putting pressure on the nation's terms of trade. That deterioration prompted New Zealand's central bank to start cutting interest rates in June.

Shareef said the market still expects the Bank of England's rate to rise by a quarter point by mid-2016 but the BoE will likely be beaten by the US Federal Reserve in hiking rates. Investors may get more of a sense of the Fed's timing with the release of July non-farm payrolls data in the US on Friday.

The local currency traded at 59.94 euro cents from 59.92 cents late yesterday and rose to 81.69 yen from 81.58 yen. The kiwi was little changed at 89.14 Australian cents from 89.13 cents yesterday, and the trade-weighted index advanced to 69.95 from 69.83.

BusinessDesk.co.nz

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