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NZ dollar gains as investors weigh up Fonterra's opening forecast for 2017 season

Wednesday 25th May 2016

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The New Zealand dollar gained as investors weighed up the outlook for Fonterra Cooperative Group's opening milk price forecast for 2017 in what's expected to be an improvement on the current season. 

The local currency increased to 67.32 US cents at 8am in Wellington from 67.19 cents yesterday. The trade-weighted index advanced to 72.71 from 72.48. 

Fonterra's board is in a two-day meeting and is expected to release the opening forecast for the 2017 season at the conclusion, which a BusinessDesk survey of analysts predicts will be at least $4.43 per kilogram of milk solids, up from the current season's $3.90/kgMS. The slump in global milk prices has weighed on New Zealand's economy, putting pressure on the Reserve Bank to cut interest rates to a record low, and Fonterra has been managing cash flow to help keep its farmer shareholders solvent. Dairy products are New Zealand's biggest commodity export. 

"Until the milk price moves back above $5/kg MS (and higher dividend payments persist), it’s going to be difficult for many farmers to generate profit/break even," ANZ Bank New Zealand agri-economist Con Williams and FX strategist Sam Tuck said in a note. "This means the tight cost control impacting on service and product providers is set to continue for at least the next 12 months, if not longer, with many farmers needing to do some balance sheet repair following recent damage."

ANZ's Williams and Tuck expect investors will be watching for the forecast and April trade data today, and predict the kiwi will trade between 66.50 US cents and 67.90 cents today. 

The local currency gained to 60.40 euro cents from 59.92 cents yesterday after the German ZEW survey showed current market conditions improved, though future expectations were more downbeat. 

The kiwi fell to 46 British pence from 46.37 pence yesterday after Bank of England governor Mark Carney told politicians a vote for Britain to stay in the European Union would support an interest rate hike while an exit wouldn't automatically drive them lower. 

The New Zealand dollar rose to 74.01 yen from 73.43 yen yesterday and increased to 4.4116 Chinese yuan from 4.4028 yuan. It gained to 93.71 Australian cents from 93.36 cents yesterday.

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