NZ dollar surges on increase in Fonterra pay-out to farmers

Monday 9th November 2009

The New Zealand dollar surged 1.3% after Fonterra Cooperative Group, the world’s largest exporter of dairy products, bumped up its forecast pay-out to farmers by 19%, stoking investors’ appetite for higher-yielding, or riskier, assets.

Fonterra increased its forecast pay-out to farmers 95 cents to $6.10 per kilogram of milksolids amid surging prices for dairy products as buyers restock their depleted inventories. Chief executive Andrew Ferrier said the strong kiwi is “hurting earnings” and exchange rate volatility was hindering the company’s forecasts. Investors’ risk appetite bucked softer employment data out of the U.S., with stocks on Wall Street edging higher on Friday. The Chicago Options Exchange Board’s Volatility Index, a measure of the price of put options on the Standard & Poor’s 500, sank 4.9% to 24.19.

“The big Fonterra announcement this morning gave the kiwi plenty of support,” said Philip Borkin, economist at ANZ National Bank. “This is a strong increase, and we estimate it will add about $1.2 billion for the economy – that’s nothing to be laughed at.”

The kiwi climbed to 73.32 U.S. cents from 72.71 cents on Friday in New York and increased to 65.53 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.12.

It gained to 65.96 yen from 65.85 yen on Friday and advanced to 79.43 Australian cents from 79.25 cents. It rose to 49.21 euro cents from 48.80 cents last week and was up to 44.00 pence from 43.74 pence.

Borkin said the currency will probably find support around its current level today after it broke through the bank’s forecast range after the Fonterra announcement.

The unemployment rate in the U.S. rose to an unexpected 10.2% last month, the highest level since 1983, as non-farm payrolls shrank by 190,000 . Stocks on Wall Street shrugged off the negative data after analysts upgraded their ratings of General Electric and Macy’s.

Finance ministers and central bankers from the Group of 20 Nations met over the weekend and agreed the economic recovery was too fragile to begin removing stimulus measures, through they laid out a timetable for a new rebalancing framework.

Businesswire.co.nz

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