Dollar pares gain after Fonterra cuts forecast payout; RBNZ looms

The New Zealand dollar pared its gain after Fonterra Cooperative Group cut its forecast payout to farmers, and ahead of tomorrow's Reserve Bank meeting, where the central bank is expected to cut its track for future interest rate hikes.

The kiwi fell to 76.80 US cents at 5pm in Wellington from 77.15 cents at 8am, paring its gain from 76.21 cents yesterday. The trade-weighted index increased to 77.44 from 77.20 yesterday.

Fonterra cut its forecast payout by 60 cents to $4.70 per kilogram of milk solids, which economists estimate will cut dairy income by more than $6 billion from last season, when farmers enjoyed a record payout. That comes ahead of tomorrow's monetary policy statement, where governor Graeme Wheeler is expected to keep the official cash rate at 3.5 percent, while cutting the forecast track for the 90-day bank bill rate, which is seen as a proxy for the OCR.

The payout "was a tad more negative and worth the 40 pips response (in the kiwi) that it got," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The market's don't want to do anything more until the MPS tomorrow."

Westpac's central view is that the RBNZ will cut its forecast track by 30 basis points, "but the risk is it could be more," Speizer said. The reduction would be down to New Zealand's slow pace of consumer inflation, which was at an annual pace of 1 percent in the September quarter, just within the central bank's target band.

New Zealand house sales rose on an annual basis in November for the first time in 13 months, as high-end property turnover offset a quiet market in lower value housing, according to Real Estate Institute figures. Government data showed New Zealand's guest nights for a fourth month in October, with favoured tourist destination Queenstown helping drive the increase in accommodation numbers.

The kiwi was little changed at 92.58 Australian cents at 5pm in Wellington from 92.53 cents yesterday, and traded at 91.63 yen from 91.71 yen. It was little changed at 62.04 euro cents from 61.99 cents, and rose to 49.02 British pence from 48.76 pence.

(BusinessDesk)