NZ dollar little changed after dairy prices fall

The New Zealand dollar held its ground as prices declined at the overnight GlobalDairyTrade auction as expected.

The kiwi was at 64.67USc at 8am in Wellington, from 64.58USc at 5pm yesterday. The trade-weighted index was at 70.69 from 70.64.

Dairy product prices fell for a third consecutive time in the latest GlobalDairyTrade auction amid an increase in international supply and a subdued outlook.

The GDT average winning prices dropped 7.9% from the previous fortnightly auction, even as volumes declined 12%, weighing on the outlook for New Zealand's largest commodity export. However, the decline is in line with signals from NZX milk futures, analysts say.

"GDT auction prices fell, but markets were well prepared for this and the magnitude of falls was within the range of expectations," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck say.

"The low run of dairy prices looks set to consign the dairy sector to another dismal season."

Fonterra reiterated at a news conference this week that whole milk powder prices on the GDT platform need to hit US$3000 per tonne in order for it to meet its current forecast for this season of $4.60 per kilogram of milk solids. In last night's auction, whole milk powder sank 11% to US$2148 a tonne.

The cooperative is due to review its forecast by early December as part of government regulations.

"The key for Fonterra's current $4.60/kgMS milk price forecast will be how long the current downtrend persists," ANZ says.

ASB Bank lowered its forecast payout by 40c $4.60/kgMS and Westpac Banking Corp is expected today to review its $5.30/kgMS forecast for Fonterra's payout.

Bank of New Zealand last week cut its forecast to $4.50/kgMS from a previous estimate of $5/kgMS. ANZ expects the kiwi to trade between 64.30 US cents and 65 cents today.

Trading in currency markets may be light today ahead of tomorrow's release of the Federal Reserve's minutes to its last meeting, ANZ says.

The New Zealand dollar slipped to 90.84Ac from 91.14c yesterday, advanced to 60.78 euro cents from 60.58 cents, gained to 79.81 yen from 79.67 yen, edged up to 4.1241 yuan from 4.1166 yuan, and was little changed at 42.52 British pence from 42.55 pence.

(BusinessDesk)