Dollar pushes above 72 US cents after dairy prices surge

Wednesday 4th November 2009

The New Zealand dollar pushed above 72 US cents after dairy prices continued to surge in Fonterra Cooperative Group’s online auction, stoking the prospects for the nation’s biggest export industry.

The price of milk powder has soared almost 88% from its low in July to US$3,437 per metric ton as manufacturers restock their depleted inventories as demand for dairy products returns.

The kiwi dollar is known as a commodity currency and usually well-supported when the price of raw materials increases. The ANZ Commodity Price index climbed for its seventh straight month in October.

The continuing strength in dairy prices “should help the currency out,” said Imre Speizer, markets strategist at Westpac Banking Corp. “Related to that, we expect Fonterra will make a positive revision to their forecast payout next week” which will lend more support to the kiwi, he said.

The kiwi climbed to 72.06 US cents from 71.43 cents yesterday and advanced to 64.99 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.54 yesterday.

It increased to 64.98 yen from 64.34 yen yesterday and edged higher to 79.94 Australian cents from 79.81 cents. It gained to 48.92 euro cents from 48.50 cents and was little changed at 43.87 pence from 43.82 pence.

Speizer said the currency may trade between 71 US cents and 73 cents today with a bias towards the top end of the range as the Fonterra result underpins support for the New Zealand economy. Still, the 76.35 cents high will probably be the currency’s top and he expects it to fall between 66 cents and 70 cents “before the correction is properly over.”

The Reserve Bank of Australia hiked its benchmark interest rate 25 basis points to 3.5% as expected yesterday, but Governor Glenn Stevens was less hawkish than the market wanted, saying he would remove monetary policy stimulus gradually.

Danica Hampton, currency strategist at Bank of New Zealand said the Australian central bank’s statement paved the way for weakness in the trans-Tasman currencies.

“The move disappointed the cowboys looking for a more aggressive 50bps move and the accompanying statement didn’t really give much away in terms of the outlook for Australian rates,” she said.

Reserve Bank of New Zealand Governor Alan Bollard will give a speech to the Trans-Tasman Business Circle tomorrow on the differences between the Australian and New Zealand economies. He’s expected to give away some hints on the divergence between the two countries’ monetary policies.

Businesswire.co.nz

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