Third consecutive double digit gain as global dairy prices hit new record high

By Kymberly Martin

NZD

The NZD has been the strongest performer of its peers over the past 24-hours. It sits at 0.8420 currently.

The NZD was initially dragged higher yesterday afternoon on the coat-tails of a stronger AUD post the RBA meeting (see Majors).

Later in the evening the NZD appeared to build momentum of its own, in the backdrop of buoyant global equity markets.

Early this morning the global dairy trade auction was also supportive. Global dairy prices hit a new record high, after rising 14.2% on average since the previous auction a fortnight ago.

This is the third consecutive auction with double digit price gains, as the short supply of product squeezes prices upward. Dairy prices have more than doubled since the mid-May 2012 low.

While the NZ drought is a reason for the price gains, the lift in prices is providing a decent offset to the production losses. The NZD/USD moved up from 0.8400 to 0.8440 overnight before drifting off to sit around 0.8420 this morning.

The NZD was also stronger on the crosses overnight. The NZD/AUD has pushed above the range that had contained it for the past few days, to sit at 0.8050 this morning.

The NZD was on a steady upward path relative to its European peers overnight. The NZD/EUR broke above previous resistance to sit at 0.6560 this morning.  Last August highs around 0.6680 are now being eyed.

Meanwhile, the NZD/GBP has pushed up to new highs, breaking above February’s peak. It sits at 0.5570 this morning.

For today, NZD/USD support will be found on any dips towards 0.8380, with resistance seen at 0.8450.

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Majors

Over the past 24-hours the USD has strengthened slightly. The worst performing currency has been the GBP.

Overnight, our risk appetite index (scale 0-100%) has inched back up to 75%. There was a relatively buoyant tone in markets despite fairly lacklustre European data.

The final reading of the EU Manufacturing PMI for March sat firmly in contraction at 46.8. Data also showed the EU unemployment rate at a new record high of 12%.

However, in an apparent relief rally as the European political situation failed to deteriorate over the Easter break, European equities put in a strong performance. The Euro Stoxx 50 closed up 2.1%, led by financials.

However, there is yet to be a break-through in the Italian political gridlock, and in Cyprus the finance minister has announced his resignation.

The EUR/USD remains in a pattern of consolidation after its fall from early-Feb highs. The EUR/USD sits at 1.2820 this morning with key support eyed at 1.2760.

The GBP came under selling pressure last night after data showed the UK manufacturing sector shrinking more than anticipated in March (UK PMI 48.3 vs. 48.7 expected). The GBP/USD slipped from 1.5240 to 1.5120.

Conversely the AUD, CAD and NZD were well supported overnight by broad risk appetite.

The AUD/USD was also boosted yesterday afternoon to 1.0480 after the RBA announced that interest rates remained unchanged (see Fixed Interest). Subsequently the AUD/USD has slipped back to trade at 1.0460.

This afternoon China non-manufacturing PMI data will be released, although it generally attracts less attention than the manufacturing component.

Tonight, the US ADP employment report will be released, ahead of the more important US payrolls report on Friday.

All its research is available here.