GBP/NZD Softens as ?Kiwi? Firms ahead of Important Dairy Announcement

May 27, 2015 - Written by Admin

STORY LINK GBP/NZD Softens as ?Kiwi? Firms ahead of Important Dairy Announcement

New Zealand Dollar Advances in Quiet Day for UK Data

The ‘Kiwi’ managed to record gains against the Pound ahead of extremely important dairy events and UK data on Thursday. As dairy is New Zealand’s largest commodity, any price changes or developments can cause significant ‘Kiwi’ exchange rate movement. Dairy giant Fonterra is about to announce its forecast pay-out for next season. Last year dairy prices fell by around 50% and had a devastating impact on the New Zealand economy and the ‘Kiwi’ commodity currency.

Strategist Sam Tuck commented: ‘ANZ’s forecast for the milk price is $5 to $5.25 (per kilogram of milk solids) for the season, and an advance payment of $3.50. These two things are really interesting and the advance pay-out is probably, for farmers, the more important of the two. Everyone is waiting for the Fonterra milk price announcement to make sure they’re not off-base with that, and the ‘Kiwi’ will probably sit around here for the moment.’

NZD/USD Recovers from 2-Month Low

As the ‘Kiwi’ awaits the news, the exchange rate has been able to recover from a two-month low against the US Dollar, rising to 72.50. The beginning of the week saw New Zealand’s trade surplus shrink significantly in April which failed to offer the ‘Kiwi’ any support. The surplus narrowed to only 123M in April from the previous 754M recorded in March. The shrinkage is thought to be a result of lesser demand for milk products in China. China is the Oceanic region’s largest trading partner and therefore a slowdown in the Chinese economy can impact the ‘Kiwi’ exchange rate and the domestic NZ economy.

Industry expert Jason Attewell commented: ‘The value of whole milk powder we sent to China in April 2015 was a fifth of the April 2014 value. Volumes were a third of what they were in April 2014 and lower prices made up the rest of the fall in value.’

GBP/NZD Movement Likely to Follow UK GDP

Meanwhile, the UK is also set for a big day on Thursday with the release of the UK’s Gross Domestic Product stat. Favourable growth could help to encourage the Pound higher. Additionally, if growth has performed well, investors may begin to price in a Bank of England borrowing cost rise which could offer the UK currency additional buoyancy. This week the central bank came under fire when it was leaked it was planning to orchestrate a sensitive project examining the risks of Britain leaving the EU.

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TAGS: New Zealand Dollar Forecasts