You are using an older browser version. Please use a supported version for the best MSN experience.

NZD falls as Fonterra forecast disappoints

NZN 26/05/2016 Jonathan Underhill

The New Zealand dollar fell after Fonterra gave a lower-than-expected opening forecast for the 2017 milk payout, which it said partly reflected a strong currency, stoking expectations the Reserve Bank will cut interest rates sooner rather than later.

The kiwi fell to 67.16 US cents as at 5pm in Wellington, from 67.51 cents on Wednesday. The trade-weighted index dropped to 72.32 from 72.83.

Fonterra forecast a 2016/17 payout of $4.25 per kilogram of milk solids, below market estimates of $4.60-$4.80/kgMS, saying its estimate took account of a strong kiwi dollar, global over-supply, international inventory levels and the economic outlook for major dairy importers.

The forecast suggests many suppliers to New Zealand's biggest export industry will face a third year of returns below their cost of production.

"It was a horrible result and we don't know whether Fonterra is just being ultra-conservative," said Tim Kelleher, head of institutional FX sales at ASB Bank. The low forecast means "there's a greater chance the Reserve Bank will have to act sooner rather than later to cut interest rates because the currency is too high."

The kiwi climbed from its lows of the day after the release of the government's Budget 2016, which projected a small surplus for 2016 and biggest surpluses out to 2020.

Kelleher said the biggest news for the market was an $8 billion reduction in the Debt Management Office's issuance programme through 2020, with $2b taken off each of the next four years.

The yield on the two-year government bonds dropped 9 basis points to 2.11 per cent, the lowest in more than a week. The 10-year bond yield fell about 6 basis points to 2.65 per cent. Swap rates also moved lower. The two-year swap rate fell 6 basis points to 2.24 per cent and the 10-year swaps fell 4 basis points to 2.87 per cent.

The kiwi fell to 45.65 British pence from 46.19 pence on Wednesday as the pound strengthened on results of a poll that showed 44 per cent of Britons surveyed favoured remaining in the European Union, while only 38 per cent wanted to leave, a process that has been dubbed Brexit.

The New Zealand dollar tumbled to 93.10 Australian cents from 93.72 cents on Wednesday, following Fonterra's announcement. The kiwi fell to 60.04 euro cents from 60.54 cents and dropped to 73.69 yen from 74.25 yen. It fell to 4.4033 yuan from 4.4272 yuan.

image beaconimage beaconimage beacon