NZ dollar falls after RBNZ adopts easing bias, Fonterra cuts forecast payout

Thursday 30th April 2015

The New Zealand dollar fell after the Reserve Bank adopted a bias towards lower interest rates, saying it would cut rates if inflationary pressures come in below expectations, and after Fonterra Cooperative Group cut its forecast payout to its farmer shareholders.

The kiwi dropped to 76.15 US cents at 5pm in Wellington from 76.91 cents at 8am and 76.90 cents yesterday. The trade weighted index declined to 78.40 from 79.30 yesterday.

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent, and said he may have to lower rates if demand and inflationary pressures track lower than its current forecast. That formalised the easing bias flagged last week when assistant governor John McDermott said the bank isn't considering a rate hike, something that was explicitly kept in the March monetary policy statement.

Separately, Fonterra trimmed its forecast payout by 20 cents to $4.50 per kilogram of milk solids, blaming volatility in global commodity prices and the over supply in the market, while at the same time saying it expected New Zealand production to be higher in the current season than a year earlier.

"The local stuff is starting to weigh on the kiwi now, the economy is doing alright, but things are starting to turn," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The kiwi fell 60 pips by (the RBNZ) formalising the easing bias."

New Zealand's two year swap rate fell to 3.48 at 5pm in Wellington from 3.5 yesterday and the 10 year swap rate increased to 3.82 from 3.79.

The Reserve Bank's review followed the US Federal Reserve, which showed policymakers were concerned about the growth in the world's biggest economy. That prompted some traders to push out their expectations for when the Fed will start lifting interest rates.

Westpac's Speizer said once the Fed gets closer to hiking rates then the US dollar will resume its uptrend, which has stalled in recent weeks.

New Zealand government figures today showed a pick-up in issuance of new building consents in March, turning around three months of declines. That was largely driven by more permits for new apartments, townhouses, flats and retirement village units.

The next major piece of local economic data will be next week's employment data, and Speizer said more attention will be paid to the wage data than usual after the Reserve Bank today name checked wage setting as one of the inflationary components it's watching.

The kiwi fell to 95.26 Australian cents at 5pm in Wellington from 96.27 cents yesterday, and declined to 4.7224 Chinese yuan from 4.7719 yuan. It dropped to 90.36 Japanese yen from 91.47 yen yesterday, and fell to 68.55 euro cents from 70.18 cents. The local currency declined to 49.36 British pence from 49.84 pence yesterday.

BusinessDesk.co.nz

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