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NZ Dollar Outlook: Kiwi may decline on dairy auction weakness

Monday 16th November 2015

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The New Zealand dollar may decline this week as dairy prices look set to head lower at the fortnightly GlobalDairyTrade auction.

The kiwi may trade between 63.50 US cents and 66.80 cents this week, according to a BusinessDesk survey of nine currency analysts. Six expect it to drop, two say it may rise slightly, and one expects it to remain largely unchanged. The local currency recently traded at 65.35 US cents.

The New Zealand dollar is weakening in line with lower prices for dairy products, the country's largest export commodity. Prices are expected to drop on the GlobalDairyTrade platform this week as supply continues to exceed demand. Also weighing on the kiwi are expectations the Federal Reserve will hike interest rates next month in contrast with New Zealand rates which are likely to head lower.

"More pressure will come on the kiwi from that milk auction," said Stuart Ive, OMF senior dealer, foreign exchange. "If we see a weak auction again tomorrow that will follow through and we will see some lower numbers tested."

Based on NZX milk futures, OMF expects whole milk powder prices may fall 10-15 percent at Tuesday night's auction, which would drag the overall GDT index lower, Ive said.

"I do expect it to continue to be weak, but how weak we are yet to see, but certainly if we get another negative 10 percent that's going to raise expectations that perhaps the RBNZ will have to do something to stimulate the economy, combined with the low inflation numbers that are still dogging every country in the world."

Commodity currencies such as the kiwi may also come under selling pressure following Friday night's terrorist attacks in Paris, as investors favour so-called safe haven currencies such as the US dollar and the yen. The euro may come under pressure should consumers stay home, denting spending and hurting the regional economy, Ive said.

Other reports scheduled for release in New Zealand this week include the Reserve Bank's quarterly survey of inflation expectations, due tomorrow; third quarter producer prices, due Thursday; and October credit card billings, due Friday.

In Australia, the Reserve Bank of Australia will release the minutes to this month's meeting tomorrow, which will be scrutinised for hints to future policy. RBA assistant governor (economic) Christopher Kent will deliver opening remarks to UBS's Australasia conference in Sydney tomorrow, while assistant governor (financial markets) Guy Debelle is scheduled to speak on Wednesday, and Alexandra Heath, head of economic analysis is due to speak on Friday at a Resources and Energy Workshop hosted by the Department of Industry, Innovation and Science in Canberra

Australian data on third quarter wages and October goods imports are published Wednesday.

In the US, the focus will be on Wednesday's release of the Federal Reserve's minutes to its last meeting, which will be eyed for signals about future rate hikes. Fed Governor Jerome Powell is set to speak on Tuesday, while New York Fed boss William Dudley, Atlanta Fed chief Dennis Lockhart, and Cleveland Fed President Loretta Mester will be on a panel at a conference on Wednesday. Other Fed officials holding talks this week include the Dallas Fed’s Rob Kaplan, also on Wednesday, Lockhart again on Thursday, and St Louis Fed President James Bullard, on Friday.

Investors will get a fresh take on the state of the US housing industry, with reports on the housing market index and housing starts slated for release on Tuesday and Wednesday respectively. Other US data scheduled for the coming days include the Empire State manufacturing survey, due today; consumer price index, and industrial market index, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and the Kansas City Fed manufacturing index, due Friday.

In the UK, inflation data is due tomorrow.

In Europe, European Central Bank president Mario Draghi is scheduled to speak in Madrid tonight, shortly after the final read of European Union October inflation. The ECB publishes the minutes to its last meeting on Thursday, and European consumer confidence is due Friday.

In Japan, the central bank is expected to keep policy unchanged at its meeting on Thursday. Japan publishes third-quarter gross domestic product data today and October trade data on Thursday.

China releases its latest property price data on Wednesday.

 

 

 

 

BusinessDesk.co.nz



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