Dollar edges up ahead of Fonterra milk price forecast

The New Zealand dollar edged up in local trading ahead of Fonterra Cooperative Group's milk price forecast tomorrow, which some economists expect to be cut after a steady decline in the price of dairy products sold on the exporter's GlobalDairyTrade platform.

The kiwi increased to,85.60 US cents at 5pm in Wellington from 85.48 cents at 8am, and 85.34 cents yesterday. The trade-weighted index rose to,79.86 from 79.73 yesterday.

Fonterra will announce its forecast for the 2013/14 and 2014/15,seasons when New Zealand's stock market opens tomorrow, and is widely seen cutting this year's,payout to its farmer shareholders from a record $8.65 per kilogram of milk solids. Soaring dairy prices have underpinned New Zealand's strong terms of trade last year, and their recent decline has economists paring their expectations for a big payout.

"I expected a bit more pressure placed on the kiwi ahead of the expectations for a weaker payout forecast by Fonterra tomorrow, that will be in the back of everyone's minds," said Stuart Ive, senior adviser at OMF in Wellington. "If Fonterra were to reduce the payout, the kiwi might struggle to go through level" of 85/85.10 US cents, which has strong support, he said.

Trading was muted yesterday with the US and UK closed for holidays.

The kiwi was little changed at 65.67 euro cents from 62.65 cents yesterday after European Central Bank president Mario Draghi told a forum in Portugal the bank must be particularly watchful for any negative price spiral in the euro zone, and that it was not resigned to inflation being too low for too long.

Traders will be watching for any more comments from the forum,after the European Parliament elections showed increased support for extremist euro-skeptic parties.

The local currency rose to,87.26 yen from 86.96 yen yesterday as Bank of Japan deputy governor Kikuo Iwata said excessive gains in the currency are bad for the nation’s exports. Governor Haruhiko Kuroda is due to speak at a conference tomorrow.

The kiwi was little changed at 92.39 Australian cents at 5pm in Wellington from 92.37 cents, and traded at 50.76 British pence from 50.68 pence.

(BusinessDesk)