NZ Dollar Outlook: Kiwi may fall on prospects for milk price
NZ Dollar Outlook: Kiwi may decline as reduced dairy payout hurts sentiment
By Tina Morrison
May. 26
(BusinessDesk) - The New Zealand dollar may decline this
week as weaker dairy prices are expected to see Fonterra
Cooperative Group pull back its forecast payout to
farmers.
The local currency may trade between 84.30 US
cents and 86.50 cents this week, according to a BusinessDesk
survey of 10 traders and strategists. Seven predict the kiwi
will fall this week, while three expect it to increase. It
recently traded at 85.32 US cents.
Reserve Bank
governor Graeme Wheeler told a dairy farmers' conference in
Hamilton this month that the local currency was overvalued
and the central bank may intervene in the market to sell New
Zealand dollars, should the kiwi remain high while commodity
prices fall. Dairy prices at Fonterra’s GlobalDairyTrade
auction declined for the seventh time in a row last week,
fuelling speculation the world’s biggest dairy exporter
will reduce its forecast payout to farmers on Wednesday
following its monthly board meeting.
ANZ Bank New
Zealand, the nation's largest rural lender, expects Fonterra
may pull back its current forecast for a record payment of
$8.65 per kilogram of milk solids by 20 to 30 cents and set
its opening level for the coming season below $7 in response
to the lower prices.
"The main theme this week will be
the milk price payout which is a proxy for our global dairy
industry," said Sam Tuck, senior foreign exchange strategist
at ANZ in Auckland. "For the New Zealand dollar, it's not as
good as we might have previously supposed so that might take
a bit of the cream off the New Zealand dollar as well as the
milk price."
The kiwi may test its support level of 85
US cents this week, which would mark its lowest level since
the Reserve Bank started hiking interest rates in March,
Tuck said. "Offshore markets are looking for reasons to sell
New Zealand dollars," he said.
Still, the kiwi will
probably continue to remain attractive to investors beyond
this week because of its higher yield on the expectation the
central bank will hike rates for a third time at its next
review on June 12, and potentially leave the door open for
another rise in July.
"We are not expecting it to fall
out of bed," Tuck said.
The week will probably start
on a quieter note as US financial markets are closed for the
Memorial Day holiday today while the UK has a bank
holiday.
This afternoon, the central bank will release
its April data on low equity bank mortgage
lending.
Tomorrow, the New Zealand Institute of
Economic Research publishes its quarterly predictions. On
Thursday, the Reserve Bank releases details of its foreign
currency assets and liabilities for April, which would
indicate if it has been active in the currency market, while
Finance Minister Bill English will give a post-budget speech
to the Hutt Valley Chamber of Commerce.
On Friday,
April data on building consents and household credit are
released while the ANZ publishes its latest business
confidence survey.
Elsewhere this week, Japan will
publish data on April inflation, the US has first quarter
GDP, Australia has capital expenditure data, a key indicator
of how the transition from mining investment to other forms
of business investment is progressing, and China has
manufacturing
PMI.
(BusinessDesk)