NZ dollar falls as Fonterra cuts forecast payout, risk sentiment dims

Tuesday 8th March 2016

The New Zealand dollar fell after Fonterra Cooperative Group cut its forecast payout to dairy farmers citing global oversupply, and as other commodity prices and equity markets dropped on waning appetite for risk-sensitive assets.

The kiwi declined to 67.69 US cents at 5pm in Wellington from 67.95 cents at 8am and 67.96 cents yesterday. The trade-weighted index dropped to 72.75 from 73.09 yesterday.

Fonterra trimmed 25 cents from its forecast payout for the current season to $3.90 per kilogram of milk solids, blaming Europe's production for oversupplying the market, and hinting at more support for cash-strapped farmer shareholders. At the same time, other commodity prices retreated from recent highs and stock markets across Asia declined on subdued risk sentiment.

"After a strong rally in commodity currencies we've seen in the past week or so, markets have taken a little bit of a step backwards as Asian equity markets pulled back," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The kiwi came off about 20 pips after the Fonterra news and hasn't really recovered from that."

Government data today showed New Zealand's manufacturing sales volumes rose 1.3 percent in the December quarter, led higher by petroleum and coal in what are typically volatile industries.

New Zealand's Reserve Bank is set to review the 2.5 percent official cash rate on Thursday, and while governor Graeme Wheeler is expected to loosen policy traders will be watching for guidance on future cuts.

The two-year swap rate increased one basis point to 2.42 percent, and 10-year swaps slipped one basis point to 3.11 percent.

The kiwi fell to 91.09 Australian from 91.64 cents yesterday, having hit a three-month low after yesterday's 19 percent jump in iron ore prices which retreated from that spike today.

The local currency dropped to 4.4044 Chinese yuan from 4.4254 yuan yesterday after government figures showed China's exports sank 25 percent in February and imports fell 14 percent.

The kiwi declined to 61.42 euro cents from 61.83 cents yesterday ahead of the upcoming European Central Bank meeting on Thursday in Brussels, which investors are expecting will inject more stimulus in the regional economy. The local currency dropped to 47.49 British pence from 47.82 pence yesterday, and sank to 76.46 yen from 77.25 yen.

BusinessDesk.co.nz

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