Dollar lifts as Fonterra forecast spurs gains in crosses

The New Zealand dollar rose on an improved forecast payout by Fonterra spurring the currency higher against most of the other cross rates.

It reversed an overnight slide against the greenback as global markets reflected concern a weaker Chinese economy will weigh on global growth and demand for commodities, including dairy products and meat.

The kiwi fell to 62.43USc at 8am in Wellington, from 62.63c late yesterday, and recovered to be trading at 62.51c after the Fonterra announcement. The trade-weighted index rose to 68.34 from 68.19 immediately before the Fonterra announcement.

Across the globe, commodity prices fell for a second day as traders were spooked by a weaker than expected manufacturing gauge of Chinese production yesterday.

That weighed on commodity-linked assets such as the kiwi in the lead-up to the Fonterra release, where the world's biggest dairy exporter raised its forecast payout for the 2016 season to $4.60 per kilogram of milk solids from $3.85/kgMS.

"As lower export prices and pending falls to the terms of trade were effective ‘anchors’ in justifying a lower Official Cash Rate, Reserve Bank of New Zealand projections of a 20% peak-to-trough fall in the terms of trade now look on the pessimistic side," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck say.

"It means that all else equal, monetary conditions don't need to loosen as much, and with the New Zealand dollar still drifting lower, this implies less work from the OCR is needed."

While the kiwi was largely unmoved against the greenback, it gained against most of the cross rates after the Fonterra release. The local currency rose to 89.40Ac from 89.05c yesterday, gained to 75.22 yen from 74.99 yen and advanced to 41.05 British pence from 40.80 pence. The local currency fell to 3.9936 Chinese yuan from 3.9958 yuan, and declined to 55.96 euro c from 56.21c yesterday.

Traders will keep an eye out for New Zealand merchandise trade figures for August due at 10.45am.

(BusinessDesk)