NZ dollar hits 3-month high as higher Fonterra payout tipped

The New Zealand dollar has climbed to a three-month high against the greenback amid speculation Fonterra will raise its forecast pay-out to dairy farmers.

The board of the world's largest dairy exporter meet today and investors are picking the company will raise its forecast pay-out after the price of whole milk powder surged to its highest level since July 2008 on Fonterra's online trading platform.

This month the average price for whole milk powder jumped 21 per cent to US$3,969 a tonne from March, according to the globalDairyTrade website. The auction price is fast becoming a de facto market price, based on recent data from NZX's Agrifax service.

Fonterra's latest forecast for its 2010 payout is $6.05 per kilogram of milk solids.

The kiwi climbed above 72 US cents for the first time since September as investors prepare for the Reserve Bank's review the official cash rate on Thursday, which will give a clue as to when Governor Alan Bollard will begin hiking rates.

"Agrifax (dairy) prices have moved to the auction price - that auction price has held" and is now an indication of where world prices are, said Imre Speizer, markets strategist at Westpac Bank.

If Fonterra's board doesn't announce an increased forecast "that would definitely cause a pull-back, possibly below 72 US cents, but I can't see them doing that."

The kiwi gained to 72.22 US cents from 71.90 cents yesterday, and rose to 67.23 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partner, from 66.99.

It climbed to 67.89 yen from 67.67 yen yesterday, and was up to 77.91 Australian cents from 77.40 cents. It was little changed near a new 26-month high at 54.02 euro cents from 54.04 cents yesterday, and increased to 46.72 pence from 46.55 pence.

Speizer said the currency may trade between 72 US cents and 73 cents today, though there are "no technical levels before

74 cents." He predicts the kiwi will continue to outperform on the crosses, and will rise to a range of between 74 cents and 76 cents in the next few weeks.

Greece's fiscal woes stayed in the headlines after German Chancellor Angela Merkel said the Mediterranean nation will have to commit to new savings measures before Europe's largest economy will help. Greek 10-year bonds widened to a new record of 650 basis points above German bunds.