Analysts Forecast Two to One for GBP NZD on Dairy Auction Results

January 20, 2016 - Written by Ben Hughes

STORY LINK Analysts Forecast Two to One for GBP NZD on Dairy Auction Results

Sterling Struggled Yesterday on Dovish Carney

The Pound Sterling suffered pronounced downside during yesterday’s session thanks to decidedly dovish comments from Bank of England Governor Mark Carney. Sterling’s losses against the New Zealand Dollar (currency : NZD) were particularly pronounced following the publication of the latest Global Dairy Trade Auction results.

The Kiwi’s fortunes remain inextricably linked to these fortnightly auctions by dint of the fact that New Zealand’s number one export is milk powder. On the face of it then, yesterday’s results, which revealed the second fall in overall dairy prices since the turn of the year, spelled bad news for the New Zealand tender.

Milk Prices Better-than-Expected Following Global Dairy Trade Auction

However, the overall drop of 1.4% across all dairy sectors, which was a similar result to the 5th January auction, was not as bad as some analysts had been calling.

In a clear case of putting the cart before the horse, investors had been expecting something considerable worse, so the outcome was seen as relatively ‘good’ for the Kiwi.

Drilling down into the numbers, dairy market watchers noted that Whole Milk Powder (WMP) had only declined by 0.5% to an average price US$2,188/MT, suggesting that the market may be nearing a bottom. However, the latest Skimmed Milk Powder (SMP) results were less convincing, showing a drop of 0.5% to an average price US$2,188/MT.

All in all, it could have been a lot worse for the Kiwi and the outcome left reasonable grounds for New Zealand’s farmers to expect a small increase in the next set of results in two weeks’ time.

GBP to NZD Exchange Rate Dropped into 2.1700s Yesterday

The Pound Sterling New Zealand Dollar exchange rate dropped into the 2.1700s following the dairy auction results – the pair had been trading at close to the 2.2200 GBP NZD threshold during early trading.

The downside shift for the pair represented a continuation of the major trend for the GBP NZD exchange rate, which reached its near-term peak above the 2.5000 level during the final week of August 2015 when global shares capitulated. Analysts forecast that GBP NZD could now find the momentum to track lower towards the two to one threshold in the short to medium term.

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