Dollar may push on to 74 US cents after Fonterra boosts pay-out forecast

Wednesday 23rd September 2009

The New Zealand dollar may push on to 74 US cents after it surged 2% to a new 13-month high on data that may show the recession abated in the second quarter and after Fonterra Cooperative Group increased its payment forecast.

The kiwi climbed as high as 72.25 US cents after the world’s largest dairy cooperative yesterday announced a 12% increase in its projected pay-out to farmers this season to $5.10 per kilogram of milk solids.

That followed a smaller-than-expected current account deficit which shrank to 5.9% of gross domestic product in the three months ended June 30, from 8.1% in the previous quarter.

Government figures today may show the economy shrank 0.1% in the second quarter after a 1% slump in the first three months of the year. A revival of economic growth, spurred by bigger payments to dairy farmers, may stoke expectations that interest rates will rise sooner the Reserve Bank Governor Alan Bollard has predicted.

“The revised payout forecast saw markets speculate on an earlier start to RBNZ tightening,” said Mike Jones, a strategist at Bank of New Zealand. A positive second-quarter GDP figure “is certainly not out of the question and this would see the greatest reaction from the NZD.”

The kiwi eased to 71.99 US cents from 72.25 cents yesterday, and slipped to 65.34 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.60. It edged lower to 65.56 yen from 65.92 yen yesterday, and dropped to 48.57 euro cents from 48.79 cents.

It declined to 82.35 Australian cents from 82.51 cents yesterday.

“Having broken through Tuesday’s high and its 72 US cents objective, it has to target 73.85 cents – that’s the new environment,” said Imre Speizer, markets strategist at Westpac Banking Corp.

He said the currency may trade between 71.50 US cents and 72.50 cents today, with only minor resistance on the top-side, as it moves on towards 74 cents. He recommends traders buy on dips around the bottom of the range.

The Federal Open Market Committee meets tomorrow, and while it isn’t expected to move away from its zero interest rate policy, traders will be looking to see if they hint at an exit strategy from America’s massive stimulus measures, such as unwinding quantitative easing.

Leaders of the Group of 20 nations meet in Pittsburgh, USA. over the next two days and are expected to discuss ways to rebalance the global economy, according to Treasury Secretary Timothy Geithner.

The US has indicated it wants to adopt a framework to encourage debtor nations such as America to save more and limit consumer spending, while exporters such as China would be encouraged to spend more.

Businesswire.co.nz

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