NZ dollar gains as Fonterra hikes forecast farmgate payout

Thursday 25th August 2016

The New Zealand dollar gained after Fonterra Cooperative Group hiked its forecast payout to farmers in the current season as recent dairy auctions delivered higher-than-expected price increases.

The kiwi rose to 73.16 US cents at 5pm in Wellington from 73.05 cents at 8am and 72.79 cents yesterday. The trade-weighted index advanced to 77.50 from 77.16 yesterday.

Fonterra raised its forecast payout 50 cents to $4.75 per kilogram of milk solids, citing the recent price gains on the GlobalDairyTrade auction as global production is scaled back, bringing the supply back into balance. Still, Fonterra chairman John Wilson said prices were still at "unrealistically low levels". Milk powder, butter and cheese account for about 23 percent of New Zealand's $49.13 billion of annual exports.

"It's a big increase but I guess some of the good results in the GlobalDairyTrade auctions have really been responsible for sending this thing up to 73 (US cents) in the first place, so there is some of that priced in," said Nick Tvedt, senior corporate FX dealer at NZForex in Auckland. "The kiwi got off to a reasonably slow start and it's just made a bit of headway throughout the day."

Traders have been waiting for the central bankers' symposium in Jackson Hole, Wyoming where Federal Reserve chair Janet Yellen is scheduled to speak in the hopes she might deliver firmer guidance on when the Fed might resume raising interest rates.

The Fed's rate outlook has been a major factor in determining where the kiwi goes, with New Zealand's interest rates offering investors an attractive return with many other central banks running near-zero rate policies and buying assets to stimulate their economies. That's created a problem for Reserve Bank governor Graeme Wheeler who has struggled to meet his inflation target because of the strong kiwi dollar.

New Zealand's two-year swap rate fell 2 basis points to 1.95 percent and 10-year swaps declined 2 basis points to 2.39 percent.

The kiwi rose to 95.92 Australian cents from 95.69 cents yesterday and increased to 4.8665 Chinese yuan from 4.8458 yuan. It rose to 64.91 euro cents from 64.45 cents and was little changed at 55.29 British pence from 55.24 pence. The kiwi increased to 73.50 yen from 73.13 yen yesterday.

BusinessDesk.co.nz

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