Dollar little changed after dairy prices fall

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The New Zealand dollar held its ground as prices declined at the overnight GlobalDairyTrade auction.

The kiwi was at 64.67 US cents at 8am in Wellington, from 64.58 cents at 5pm yesterday. The trade-weighted index was at 70.69 from 70.64.

Dairy product prices fell for a third consecutive time in the latest GlobalDairyTrade auction amid an increase in international supply and a subdued outlook. The GDT average winning prices dropped 7.9 per cent from the previous fortnightly auction, even as volumes declined 12 per cent, weighing on the outlook for New Zealand's largest commodity export. Still, the decline was in line with signals from NZX milk futures, analysts said.

"GDT auction prices fell, but markets were well-prepared for this and the magnitude of falls was within the range of expectations," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "The low run of dairy prices looks set to consign the dairy sector to another dismal season."

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Fonterra, the world's largest dairy exporter, reiterated at a news conference this week that whole milk powder prices on the GDT platform needed to hit US$3,000 per tonne to meet its current forecast for this season of $4.60 per kilogram of milk solids. In last night's auction, whole milk powder sank 11 per cent to US$2,148 a tonne.

"The key for Fonterra's current $4.60/kgMS milk price forecast will be how long the current downtrend persists," ANZ said.

ASB Bank lowered its forecast payout by 40 cents $4.60/kgMS and Westpac Banking Corp is expected to review its $5.30/kgMS forecast for Fonterra's payout today. Bank of New Zealand last week cut its forecast to $4.50/kgMS from a previous estimate of $5/kgMS. Fonterra is due to review its forecast by early December as part of government regulations.

ANZ expects the kiwi to trade between 64.30 US cents and 65 cents today.
Trading in currency markets may be light today ahead of tomorrow's release of the Federal Reserve's minutes to its last meeting, ANZ said.

The New Zealand dollar slipped to 90.84 Australian cents from 91.14 cents yesterday, advanced to 60.78 euro cents from 60.58 cents, gained to 79.81 yen from 79.67 yen, edged up to 4.1241 yuan from 4.1166 yuan, and was little changed at 42.52 British pence from 42.55 pence.