Kiwi up as investors await forecast for dairy payout

The New Zealand dollar bounced from a two-month low in local trading as investors await the outcome of yesterday’s Fonterra Cooperative Group’s board meeting, which is expected to have settled the first forecast payout for next season, for release this morning.

The kiwi rose to US72.50c at 5pm yesterday in Wellington from 72.18c at 8am, still down from 73.13c on Tuesday.

The trade-weighted index declined to 75.88 from 76.15 on Tuesday.

New Zealand’s currency fell during Northern Hemisphere trading last night as investors rallied behind the greenback following upbeat economic data, reinforcing expectations the US Federal Reserve will shift away from its ultra-loose monetary policy this year.

Local focus is on Fonterra’s payout update for the 2015/16 season, which is expected today. The 2014/15 payout is forecast to be $4.50 per kilogram of milksolids, a plunge from last year’s record $8.40 per kg/MS.

All eyes are on the 2015/16 season as two seasons of low payouts in a row would place financial strain on many dairy farmers, whose production is a bellwether for Zealand’s export and economic performance.

Rival Westland Milk Products yesterday affirmed its payout for the current season and expects an increased payout for 2016, assuming Chinese buyers return to the market.

“ANZ [Bank]’s forecast for the milk price is $5 to $5.25 (per kilogram of milksolids) for the season, and an advance payment of $3.50.

“These two things are really inter- esting and the advance payout is probably, for farmers, the more important of the two,” said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland.

“Everyone is waiting for the Fonterra milk price announcement to make sure they’re not off-base with that, and the kiwi will probably sit around here for the moment.”

Fonterra said New Zealand milk production was 8 per cent higher in April than for the same month a year earlier, taking year-to-date production to 2 per cent above the previous comparable period.

Australian milk production was 7 per cent higher in April, and up 6 per cent for the season so far.

The New Zealand Institute of Economic Research yesterday estimated the country’s economy would grow at about 3 per cent a year until 2017, driving job growth and reducing unemployment, though low inflation is expected to keep a lid on interest rates.

New Zealand’s two-year swap rate was unchanged at 3.37 per cent at 5pm in Wellington from the same time on Tuesday, and the 10-year swap rate slipped to 3.98 per cent from 4.01 per cent.

The New Zealand dollar advanced to A93.55c from 93.36c on Tuesday, and dropped to 4.4983 Chinese yuan from 4.5382 yuan.

It fell to €66.56c from €66.87c, and declined to 47.06 British pence from 47.33p.

The kiwi increased to ¥89.23 at 5pm in Wellington yesterday from ¥89.10 on Tuesday.