NZ dollar slides to 2-week low on weaker commodity, dairy prices

Wednesday 16th March 2016

The New Zealand dollar dropped to a two-week low as the price of dairy products and other commodities declined.

The kiwi hit 65.82 US cents, and was trading at 65.92 cents at 8am in Wellington, from 66.67 cents at 5pm yesterday. The trade-weighted index slid to 70.78 from 71.39 yesterday.

Investors shed currencies of commodity producing countries such as Australia, New Zealand, Canada and Brazil following declines in the price of commodities including dairy products, oil and gold. Dairy product prices fell in the overnight GlobalDairyTrade auction, posting their fifth decline in the six auctions held so far in 2016, as a global milk glut shows little sign of abating. The GDT average winning price declined 2.9 percent, while the average price for whole milk powder, New Zealand's key product, slipped 0.8 percent to US$1,971 a tonne. That's despite NZX whole milk powder futures predicting a gain.

"It was only a tiny fall in the dairy auction but the futures market had indicated it would be something like a 5 to 7 percent rise so it's the first time the futures market has been wrong for quite a while," said Westpac Banking Corp New Zealand senior market strategist Imre Speizer. "Commodity currencies generally did badly and kiwi did even worse because of the dairy auction. Dairy weakness obviously is a wider concern."

Westpac expects whole milk powder to bump around near current levels for much of this year before gradually improving. The bank said the majority of product for the current 2015/16 season is now sold, so auction results are increasingly important for the upcoming 2016/17 season. It retained its forecast for a Fonterra Cooperative Group farmgate milk price of $4.60 per kilogram of milk solids for the 2016/17 season, higher than Fonterra's forecast payout of $3.90/kgMS for the current 2015/16 season.

Speizer said he expects the kiwi to continue to decline as the local Reserve Bank favours interest rate cuts while the Federal Reserve eyes rate hikes in the US. The Fed is currently reviewing policy at a two-day meeting scheduled to end today in Washington.

Should the kiwi break below 65.50 US cents over the next few days, it could start heading towards 64 cents, Speizer said.

In New Zealand today, Statistics New Zealand publishes balance of payments data for December and the Reserve Bank plans to publish its summary of bank dairy portfolio stress testing,

The New Zealand dollar fell to 88.46 Australian cents from 88.91 cents yesterday, slid to 46.56 British pence from 46.69 pence, sank to 59.55 euro cents from 59.95 cents, dropped to 4.2921 yuan from 4.3373 yuan and declined to 74.55 yen from 75.66 yen.

BusinessDesk.co.nz

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