NZD Ends Week on Positive Note After Fonterra Upgrades Forecast
Fundamental Forecast for the Kiwi:Neutral
- New Zealand annual trade deficit widened to its largest margin since April 2009
- Fonterra raised their milk payout forecast on Thursday giving NZD an end-of-week boost
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New Zealand’s dairy industry accounts for roughly ~25% of the economy’s GDP. Because of this, the economy is highly sensitive to the direction of weekly payouts in dairy auctions and is intensely sensitive to the demand drop from China for imported dairy, which has contributed to the prices paid drop of 50%. This combination along with larger macro-economic risks aligned with the easing bias from the Reserve Bank of New Zealand, which has tracked the NZDs descent from mid-2014.
On Thursday, a report came out from Fonterra, the world’s largest dairy exporter that they were raising their forecast for milk payouts on an earnings jump in 2015. This development sent sentiment through the markets that the RBNZ’s easing stance may be too aggressive and therefore less inclined to cut rates in upcoming meetings. This mild but positive surprise for the Kiwi was most seen notably against commodity currencies.
The trade deficits were concerning in regards to the annual dairy exports as well as exports to China, one of the largest consumers of New Zealand products. Per the Statistics New Zealand, annual dairy exports fell by 25% to $11.99B NZD. Additionally, annual exports to China fell by 28% to $8.36B NZD.
Looking ahead, the markets have Building Permits for August as well as the ANZ Business Confidence report this week. Building permits will be gauged vs the prior reading of 20.4% and the Business Confidence index will look to rise from the dismal -29.1 reading last month. A tick up in either readings could carry the New Zealand dollar higher in a continuation of how it closed out last week.
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