NZ Dollar Outlook: Kiwi may extend slide on Fonterra cut; fading QE3 expectations

Monday 12th March 2012

The New Zealand dollar may extend its slide this week after Fonterra Cooperative Group cut its forecast payout for the 2011/2012 season and after positive US data dimmed the chance of further monetary stimulus from the Federal Reserve.

The New Zealand dollar recently traded at 81.87 cents down from 82 US cents at 8am this morning in Wellington and from 82.10 cents at the close of trading in New York on Friday.

The kiwi is expected to trade in a range of 80 US cents to 83.60 cents, according to a BusinessDesk survey of six analysts. Five out of six analysts surveyed predict the New Zealand dollar will finish the week lower.

The world’s biggest exporter of dairy products lowered its farmgate milk price by 15 cents to $6.35 a kilogram, while keeping its so-called distributable profit in a range of 40 cents to 50 cents a share, it said in a statement today. It cited the rising New Zealand dollar, declining global prices of commodities and increased production from Northern Hemisphere rivals as the reason for the cuts. Dairy accounts for 25 percent of New Zealand’s merchandise exports.

“The kiwi suffered this morning,” said Peter Cavanaugh, senior client adviser at Bancorp. “The Fonterra announcement mirrors what the Reserve Bank said last week - exporters are being quietly choked by the high currency.”

Last Thursday, Reserve Bank governor Alan Bollard left the official cash rate unchanged at the historically low 2.5 percent. He said the strength of the currency will keep interest rates lower for longer, weighing on economic growth. The kiwi initially dropped on Bollard’s statement.

Globally, markets will remain focused on the US, the world’s biggest economy, ahead of Wednesday’s Federal Reserve meeting. The kiwi fell just before the close of trading in New York on Friday after positive US data boosted investor confidence that the US is on track to recover.

Signs of growth in the US labour market reduced demand for risk-sensitive assets such as the kiwi dollar. US jobs growth damped the likelihood of the Fed printing money for a third time, a move that would further devalue the greenback and push the kiwi higher.

“What the Fed is thinking and what they are going to do will dictate the direction” of the kiwi this week, Cavanaugh said. “A stronger US dollar means a weaker kiwi but it will also mean a weaker everything else.”

Key US economic data set for release this week includes retail sales on Tuesday and the consumer price index on Friday. Economists predict retail sales rose 1 percent in February, according to analysts polled in a Reuters’ survey. That would be a pickup from January’s 0.4 percent increase.

The Greek government announced 85 percent of private bondholders agreed to its bond swap, comfortably above the 75 percent participation threshold required to receive its second-bailout. It still has to get final approval at a euro-zone finance minister meeting in Brussels this week. The International Monetary Fund is expected to indicate its participation on March 15.

Germany will release its ZEW survey this week helping to shed light on sentiment in Europe’s largest economy.

Central banks in Japan and Switzerland are also scheduled to meet this week.

New Zealand’s accommodation statistics for January released this morning showed total guest nights fell 4.2 percent to 4.2 million, according to Statistics New Zealand. Hotels and motels reported fewer guest nights as demand from foreigners slowed even as the nation enjoyed a record number of international visitors for the month.

The Real Estate Institute releases home sales figures this week and BNZ Business NZ PMI is due out this week. The food price index for February is scheduled for release tomorrow and the ANZ-Roy Morgan Consumer Confidence on Wednesday.

BusinessDesk.co.nz

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