Dollar gains as dairy auction boosts optimism

The New Zealand dollar gained against a broadly stronger greenback after prices rose more than expected in the latest GlobalDairyTrade auction, stoking speculation Fonterra Cooperative Group may lift its forecast milk payout from a decade-low.

The kiwi rose to 63.51USc from 63.10USc late yesterday, rebounding from an earlier dip that had been driven by a stronger US dollar after US retail sales rose. The trade-weighted index rose to 68.80 from 68.28.

The GDT average winning prices jumped 16.5% to $US2568 in the latest GDT sale, the biggest increase in five years. Whole milk powder soared 20.6% to $US2495 a tonne. Some analysts say gains in prices at the past three auctions may encourage Fonterra to revisit its forecast payout for the current season of $3.85 per kilogram of milk solids, a rate that's below the cost of production for many farms and is expected to slow growth in the broader economy.

"We'll be taking a look at our $3.80/kgMS milk payout forecast for the 2015/16 season, with a view to upgrade that, as dairy prices have rebounded faster than we anticipated," said Raiko Shareef, a strategist at Bank of New Zealand. "We'd expect other analysts to also be revisiting their forecasts. Upward revisions might provide the New Zealand dollar some support through today's session."

The kiwi initially fell overnight after a Commerce Department report showed US retail sales climbed 0.2% in August, after an upwardly revised 0.7% increase in July, keeping alive talk that the Federal Reserve could raise interest rates for the first time in nine years this week, even though Fed futures suggest it won't move yet.

Traders are also looking ahead to the balance of payments for the second quarter, due out today, which is expected to show the current account deficit widened to 3.7% of gross domestic product from 3.6%. It is followed tomorrow by the GDP data, which may show the economy grew 0.6% in the second quarter, accelerating from a first quarter that was slowed by one-time events such as drought.

The kiwi rose to 4.0478 yuan from 4.0138 yuan yesterday and advanced to 56.41 euro cents from 55.71 cents. It gained to 41.43 British pence from 40.87p and increased to ¥76.57 from ¥75.63.

The kiwi dollar rose to 88.92Ac from 88.46Ac.

(BusinessDesk)