"We had a little attempt up to 64.35 this morning but it hasn't backed off that far" because the market is structurally short kiwi dollars, says Tim Kelleher, head of foreign exchange sales at Commonwealth Bank of Australia.
The GDT index rose 1.7 per cent from the previous auction two weeks ago and the price of whole milk powder jumped 2.2 per cent to US$3,321 a tonne, it's highest level in almost three years.
The strong run-up in dairy prices led economists to lift their forecasts for Fonterra's payout in the current season – the dairy co-operative itself has forecast a range of $6.55 - $7.55 per kilo of milk solids.
ASB Bank is now the most optimistic after lifting its forecast from $7.00 to $7.50 while BNZ raised its forecast from $7.10 to $7.40 and Westpac increased its prediction from $6.80 to $7.10.
ASB is also issued its first forecast for the 2020/21 season of $7.50, arguing that "we now believe that milk price volatility has fallen structurally."
The bank says current production is insufficient to meet global demand. It points out that the "spring flush" of production normally forces prices lower but not this year.
"Global production and export growth is moderating as all producers run into constraints." These include environmental and regulatory constraints, capital constraints and competition for resources such as water and land.
Kelleher says the Reserve Bank will have taken note of the strong run for dairy prices, which is "pretty positive for a non-course of action from RBNZ," meaning it makes it less likely the central bank will cut interest rates again.
Meanwhile, the US-China trade war and hopes of an interim agreement being signed soon continue to weigh on global currency markets.
The market largely shrugged off the latest development, US President Donald Trump threatening to raise tariffs further on Chinese goods if that country doesn't sign the interim deal both countries appeared to agree on in October.
"If we don't make a deal with China, I'll just raise the tariffs even higher," Trump said at a cabinet meeting.
Kelleher says that the market's still "reasonably optimistic on this trade stuff but to me it looks quite poor."
The market is also awaiting the minutes of the US Federal Reserve's last meeting due early tomorrow, NZ time.
The New Zealand dollar was trading at 94.15 Australian cents from 94.13, at 49.72 British pence from 49.70, at 57.96 euro cents from 57.95, at 69.62 Japanese yen from 69.68, and at 4.5124 Chinese yuan from 4.5137.
The two-year swap rate edged down to a bid price of 1.1250 per cent from 1.1453 per cent yesterday while 10-year swaps fell to 1.4575 per cent from 1.5025 per cent.
