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NZD/USD Sinks as Dairy Auction Boosts RBNZ Rate Cut Bets

NZD/USD Sinks as Dairy Auction Boosts RBNZ Rate Cut Bets

Daniel Dubrovsky, Contributor

Talking Points:

  • NZD/USD declined after this year’s first dairy auction
  • Whole milk powder and overall average prices dropped
  • New Zealand 2-year government bond yields fell at open

Find key turning points for the New Zealand Dollar with DailyFX SSI

The New Zealand Dollar fell against its US counterpart after milk prices dropped during first dairy auction of 2016. The average price for whole milk powder fell 4.4 percent to $2,210 per metric ton in January from $2,304 in December 2015. The GlobalDairyTrade Price Index (GDT) declined 1.6 percent to an average price of $2,458 per metric ton.

The global dairy auction is an important event for the island nation because milk exports account for roughly one third of New Zealand’s overseas revenue. As such, decreases in milk prices do not bode well for producers’ earnings. The Reserve Bank of New Zealand stated in its most recent monetary policy announcement that there are risks to the outlook should dairy prices remain weaker for longer. Fonterra, the world’s largest dairy exporter, noted on December 10th that it is confident in global milk prices continuing to improve in 2016.

The first global dairy auction of the new year passed without a positive start. The event occurred when New Zealand’s NZX Debt Market was closed. Once it opened, front-end government bond yields declined. This likely reflected increased RBNZ interest rate cut expectations.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.