Kiwi gains as Fonterra lifts forecast payout, Chinese figures gives hope

The New Zealand dollar gained after Fonterra lifted its forecast payout to farmers next year on rising dairy prices and after latest Chinese manufacturing figures gave investors heart about the strength of the world's second-biggest economy.

The kiwi rose to 83.32 US cents at 5pm in Wellington from 83.12 cents at 8.30am and 83.24 cents on Friday in New York. The trade-weighted index advanced to 74.63 from 74.51 last week.

Fonterra raised its forecast farmgate milk price by 25 cents to $5.50 per kilogram of milksolids and says the forecast net profit will be 40-50 cents per share, in line with its recent prospectus, after global dairy prices rallied through the tail-end of the year.

The dairy exporter sees more growth as extreme weather conditions worldwide cut supply of wheat and grain, which are expected to feed into higher dairy prices. As part of a new regulatory regime, Fonterra will provide quarterly updates on its forecast payouts.

The increase was "pretty much in line with the economists that follow it," says Imre Speizer, market strategist at Westpac Banking in Auckland. "There's a lot to be excited about for the kiwi – 83.50 US cents is a very key level, but it will be attractive with momentum looking very strong in the kiwi."

New Zealand's currency may trade in a range of 82 cents to 84 cents this week, according to a BusinessDesk survey of six traders and strategists. Three see the kiwi going higher and three say it may struggle to break out of its recent range.

The kiwi has not traded above 83.50 US cents since early March and if it can break through that level it has room to make further strong gains.

Investor sentiment was bolstered by strong Chinese manufacturing with official data yesterday showing industrial production climbed 10.1% in November from a year earlier. Still, slowing exports figures today dulled investors' optimism about China.

The US Federal Open Market Committee's two-day meeting starts overnight on Tuesday, with the final statement expected out at on Thursday in New Zealand.

Operation Twist, in which the Fed buys longer-dated Treasuries and sells some of its shorter-dated ones, is scheduled to end this month, prompting speculation it may announce more money printing including for outright purchases of Treasuries.

The kiwi gained to 64.57 euro cents from 64.39 cents last week and was little changed at 51.97 British pence from 51.91 pence. It increased to 79.53 Australian cents from 79.41 cents and traded at 68.69 yen from 68.62 yen.

(BusinessDesk)