NZD benefits from confusion in main currencies; markets like the Fonterra plan for farmer support

By Kymberly Martin

The NZD and AUD were the strongest performers on Friday, with the NZD/USD ending the week at 0.6620.

It was a highly volatile night for most currencies in the wake of the US payrolls report.

Overall the report was solid, whilst providing sufficient ambiguity to leave the September Fed rate hike debate alive and well. The initial response from the USD was to spike higher. From 97.70 the USD index soon found itself above 98.30, its highest level since late-April. However the move did not last. Within a couple of hours the USD was back down below 97.70.

The violent moves tossed the USD’s peers around. While the EUR/USD initially plunged to 1.0860 on the release, it later rebounded to end the week above 1.0960. This was despite disappointing industrial production release from within the region, earlier in the evening.

Canadian employment data was released concurrently with the US report. It did not provide too much in the way of surprise, so the CAD found itself knocked around by moves in the USD. After some harsh volatility the USD/CAD came to end the week at its pre-payrolls level, around 1.3130.

The AUD started its upward path on Friday afternoon, after the release of the RBA’s Statement of Monetary Policy. This showed a more upbeat take on recent AU economic developments (labour market, business conditions, currency fall, non-mining profits). The Bank sees a reasonable chance the AUD will fall further once the Fed begins tightening, but no longer explicitly calls for further decline.

The AUD/USD then suffered along with its peers after the release of the US payrolls report. However, it soon regained its composure and ended the evening higher, at 0.7420.

The NZD/USD however was the strongest performer on Friday. It appeared to respond with some relief to the announcement by dairy cooperative, Fonterra, on Friday afternoon. Fonterra announced downward revision to its 2015/16 forecast payout from NZ$5.25 to NZ$3.85/kg/MS (we see NZ$3.80 with downside risk). However, it also announced a couple of offsetting features, including an interest-free loan to farmers of NZ$0.50/kg/MS. This is available for two year, needing to be paid back when the milk price rises back above NZ$6.00. Perhaps steeled for something worse, the NZD/USD crawled higher following the announcement, through the early evening.

The NZD/USD then suffered its own bout of volatility around the USD payrolls report. From above 0.6580, the NZD/USD quickly found itself flirting with the 0.6530 level before rebounding to 0.6600. The NZD/USD ended the week at 0.6620,

The NZD was also notably stronger on most crosses. From early evening lows around 0.4220 the NZD/GBP ended the week above 0.4270. Resistance is now eyed at the late-July highs of 0.4320.

There is little on the local calendar today, with most of the data action falling later in the week. Tonight, remarks from US Fed’s Lockhart are worth keeping an eye out for, as is the release of the US labour market conditions index.

Kymberly Martin is on the BNZ Research team. All its research is available here.