NZ Dollar Outlook: Kiwi may trade in a range this week ahead of next dairy auction

Monday 27th July 2015

The New Zealand dollar may remain rangebound this week as traders assess their positions ahead of next week's GlobalDairyTrade auction.

The kiwi may trade between 63.65 US cents and 67.50 cents this week, according to a BusinessDesk survey of 11 currency advisers. Three expect the kiwi to gain, three bet it will fall and five say it will remain little changed. It recently traded at 65.80 US cents.

The local currency has lost 16 percent of its value against the US dollar so far this year as prices for dairy products, the country's largest commodity export, remain lower for longer, and prompted the Reserve Bank to reduce the official cash rate. All eyes will be on a speech by Reserve Bank governor Graeme Wheeler on Wednesday for insights into his view of the economic outlook, ahead of next week's dairy auction. The kiwi strengthened last week even though Wheeler cut the benchmark by 25 basis points to 3 percent, as some traders expected a bigger cut.

"The market lacks a catalyst to really drive it much higher or lower," said CMC Markets sales trader Sheldon Slabbert. "The market is waiting to see what the GlobalDairy auction will be like on Aug. 4. For the time being, the markets aren't really going to get ahead of themselves, the commodity space is still under pressure but at the same time we have come down against the US, so much of it is priced in, so we need something else to act as a catalyst to move us away from that 67-65 band."

The lower prices for global dairy products is prompting some companies to cut their expected payout to dairy farmers. Open Country Dairy, the country's second largest milk processor, this month cut its expected payout to its 700 dairy farmer suppliers to a range of $3.65 to $3.95 per kilogram of milk solids from a previous forecast of $4.75 to $4.95/kgMS. Westland Milk Products, the country's second largest dairy cooperative, has a board meeting scheduled for tomorrow where it is likely to review its forecast.

Fonterra Cooperative Group, the nation's largest milk processor, isn't scheduled to review its forecast until its next board meeting on Aug. 7.

New Zealand releases building consent data for June on Thursday, while the ANZ business confidence survey for July is due out Friday.

In the US, the focus will be on the July 28-29 Federal Reserve meeting, which is the last before the Fed is expected to start raising rates in September.

The US also has second quarter gross domestic product figures scheduled for release this week, as well as data on durable goods orders, manufacturing, consumer confidence, housing and the labour market.

In Australia, Reserve Bank governor Glenn Stevens is scheduled to speak at the Asia Financial Cooperation Conference in Sydney on Thursday. Australia is also due to release reports on housing approvals, trade, producer prices and private sector credit.

In China, data is scheduled for release on industrial profits, manufacturing and consumer sentiment.

Elsewhere, the UK has data on second-quarter GDP, house prices and consumer confidence.

Meanwhile, Europe has readings of unemployment and inflation, while Germany releases reports on business sentiment and consumer confidence.

BusinessDesk.co.nz

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