NZ dollar falls after Fonterra holds farmgate price; RBNZ looms

By Paul McBeth

Dec. 11 (BusinessDesk) - The New Zealand dollar fell after dairy exporter Fonterra Cooperative Group surprised investors by keeping its forecast payout to farmers unchanged and as traders await the Reserve Bank's policy statement, which is expected to keep interest rates at a record low.

The kiwi dropped to 82.78 US cents at 5pm in Wellington from 83.11 cents at 8am, little changed from 82.91 cents yesterday. The trade-weighted index declined to 77.54 from 77.78.

Fonterra kept its forecast payout to farmers at $8.30 per kilograms of milk solids for the current season, dashing expectations the world's biggest dairy exporter would pay more for its base ingredient amid rising global prices. That came ahead of tomorrow's last monetary policy statement for the year, where governor Graeme Wheeler is expected to keep the official cash rate at 2.5 percent, while he balances the need for future hikes to stave off the threat of inflation against attracting investors to an already strong currency.

"The expectations were that Fonterra were going to lift the payout up - we'd heard scuttlebutt of $9, even up to $10, so that was a little bit of a surprise," said Michael Johnston, a senior dealer at HiFX in Auckland. "But the kiwi's holding up given the RBNZ is out tomorrow."

Traders have priced in 116 basis points of increases to the OCR over the coming year, according to the Overnight Index Swap curve, though Wheeler may have to trim his track for future hikes given the persistent strength of the currency after the Federal Reserve didn't start unwinding its US$85 billion asset purchase programme in September. The quantitative easing has been debasing the greenback by flooding the market with US dollars.

"We expect them to talk about the kiwi being overvalued," HiFX's Johnston said.

Investors will also be looking out for Australian employment figures tomorrow as a gauge of how quickly the economy is slowing across the Tasman. The kiwi fell to 90.62 Australian cents at 5pm in Wellington from 91.06 cents yesterday.

The New Zealand dollar decreased to 60.14 euro cents from 60.28 cents yesterday and was little changed at 50.35 British pence from 50.40 pence. It dropped to 84.94 yen from 85.62 yen yesterday.

(BusinessDesk)