NZ dollar gains after Fonterra raises payout forecast; Fed's Yellen to speak on inflation

Friday 25th September 2015

The New Zealand dollar rose after Fonterra Cooperative Group hiked its forecast payout to farmers for the current season, alleviating fears about the impact a slowing dairy sector would have on the local economy, and ahead of a speech by Federal Reserve chair Janet Yellen.

The kiwi gained to 63.56 US cents at 8am in Wellington from 62.91 cents yesterday. The trade-weighted index advanced to 69.28 from 68.67 yesterday.

New Zealand economists lowered their view on the chances for a rate cut at the next two meetings by the Reserve Bank after Fonterra yesterday raised its forecast payout to $4.60 per kilogram of milk solids, from what would have been a decade-low $3.85/kgMS. Fonterra is seeing demand return in international markets, and now sees lower production locally, which prompted the revised forecast. Dairy products are New Zealand's biggest export commodity, and the slumping milk price spurred a series of rate cuts by the Reserve Bank in June.

That comes ahead of a speech by the Fed's Yellen on inflation, which investors will be watching for any hints on the central bank's thinking on when it will start raising interest rates from the zero to 0.25 percent policy it has been running since the global financial crisis. The Fed refrained from raising rates last week, citing volatility in global financial markets.

"The kiwi will be in consolidation mode as markets continue to digest the Fonterra news," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "I expect the resistance level at 64 (US cents) to hold unless Yellen comes out with something very very dovish."

The kiwi was bolstered by Australia & New Zealand Banking Group economists changing their view on the rate track for the Reserve Bank of Australia, calling for two more rate cuts by the central bank, which would make the local currency more attractive than its trans-Tasman counterpart. The kiwi climbed to 90.32 Australian cents from 88.83 cents yesterday.

The local currency was unchanged at 76.27 yen, and advanced to 4.0550 Chinese yuan from 4.0416 yuan. It climbed to 56.61 euro cents from 56.19 cents yesterday and increased to 41.67 British pence from 41.33 pence.

(BusinessDesk)

BusinessDesk.co.nz

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