NZD stronger despite Fonterra dairy prices fall 5%; AUD surges following RBA announcement

by Kymberly Martin

NZ Dollar

The NZD/USD trades a little higher this morning, around 0.8780.

The NZD was fairly directionless over the course of the day yesterday. It pushed higher in the early hours of this morning, despite a 5% fall in average milk prices at the Global Dairy Trade auction overnight.

This is consistent with the downward trend in dairy prices we expect. Prices have now fallen 29% since February. This will be negative for dairy farmer payout calculations and with time the declines in prices will make a dent in NZ’s terms of trade and current account figures. The RBNZ will be watching closely the divergence between falling dairy prices and still elevated NZD.

The more notable moves for the NZD overnight were on the crosses. The NZD/AUD continued its decline that was initially triggered by the RBA’s meeting yesterday.

The relative strength of the AUD continued overnight, with the NZD/AUD trading down to 0.9240 this morning. Our forecasts continue to see the cross oscillating around 0.9300 over the next 12 months.

There was a fair amount of volatility in the NZD/GBP cross overnight. It initially plunged after a stronger-than-expected UK Manufacturing PMI reading. However, it clawed back some of its losses to trade just below 0.5120 this morning.

Today, we will get further colour on the NZ commodity sector with the release of the ANZ commodity price index. We continue to see NZD/USD support approaching 0.8730. Resistance will be encountered approaching 0.8800.

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Majors

The AUD and GBP have outperformed on their respective fundamentals over the past 24-hours.

There was a fairly buoyant mood in markets overnight as manufacturing indices across regions confirmed activity remains in expansion. Equities on both sides of the Atlantic put in good performances. The Euro Stoxx 50 closed up 0.90% and the S&P500 is currently up 0.80%.

Yesterday afternoon, both the official and HSBC manufacturing PMI measures remained close to 51.0. Last evening the June Eurozone PMI held up at 51.8 while the UK measure picked up to 57.5 (56.8 expected). This saw the GBP/USD gap higher in response, continuing to rise in the early hours of this morning. It trades at 0.1750 this morning, its highest level since October 2008.

Finally, early this morning the US ISM manufacturing index remained fairly steady at 55.3 (55.9 expected). This measure is consistent with US GDP growth rebounding to around 3% in Q2 after the woefully weak Q1.

There were no additional signs of pricing pressures in the US as the prices paid component of the ISM slipped to 58 from 60. The USD index traded a tight range overnight to sit just above 79.80 this morning.

The star performer over the past 24-hours has been the AUD. It surged higher after the RBA announcement yesterday afternoon. The AUD/USD extended its gains overnight to trade close to 0.9500 this morning. This is its highest level since last November. Today the AU trade balance will be released and the RBA’s Debelle is scheduled to speak at the FT conference in London.

Tonight the US ADP employment report will be released, which is often seen as a precursor to Thursday’s all-important US payrolls data. US factory orders will also be released. Fed Chair Yellen is scheduled to deliver a lecture in Washington.

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