Dollar falls after Fonterra cuts forecast payout, Japan's Abe limits slide

The New Zealand dollar fell to a year-low after Fonterra Cooperative Group cut its forecast payout to farmers for the current season in the face of dwindling dairy prices. The decline was limited by reports Japanese Prime Minister Shinzo Abe is wary of weakness in the yen.

The kiwi dollar fell as low as 80.40 US cents after the Fonterra announcement, trading at 80.81 cents at 5pm in Wellington, down from 81.25 cents yesterday. The trade-weighted index fell to 78.16 from 78.53 yesterday.

Fonterra cut its forecast payout to farmers to $5.30 per kilogram of milk solids for the 2015 season from an earlier forecast of $6/kgMS as the pinch on global dairy prices continued. That added to a downbeat view on the kiwi after commodity-linked currencies were sold off during the Northern Hemisphere session amid heightened concerns over the strength of China's economy. Still, the decline was halted in Asian trading after Japan's Abe was reported as saying he wanted to be careful about the impact of a weaker yen, sapping investor demand for the greenback.

"The market had pretty well priced in all of the Fonterra forecast," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "The kiwi would have gone down a little bit further, but we had Japan's Abe say for a second day in a row he was concerned about a weakening yen - that's what stopped the market from buying the (US) dollar today."

The local currency fell to 87.69 yen at 5pm in Wellington from 88.35 yen yesterday.

New Zealand government figures today showed a smaller than expected monthly trade deficit of $472 million in August, as falling imports and rising exports of livestock and dairy narrowed the shortfall. New Zealand has been benefiting from strong terms of trade, and falling global prices for dairy products and logs are expected to weigh on that outlook.

The kiwi dollar was little changed at 91.10 Australian cents from 91.16 cents yesterday, and fell to 62.85 euro cents from 63.21 cents. It declined to 49.25 British pence from 49.59 pence yesterday.

(BusinessDesk)