The New Zealand dollar fell to a two-and-a-half year low as investors wait for Fonterra Cooperative Group's board to reassess the forecast payout to farmers in the face of falling global dairy prices.
The kiwi fell as low as 76.10 US cents, trading at 76.21 US cents at 5pm in Wellington from 76.71 cents at 8am, and 76.43 cents yesterday. The trade-weighted index dropped to 77.19 from 77.48 yesterday.
Fonterra's board today met for their quarterly review of the milk price forecast for the current season, and is expected to update the market tomorrow. Prices have slumped on increased global supply and heavy stockpiling by Chinese buyers, and economists anticipate Fonterra will have to reduce its forecast below $5 per kilogram of milk solids. That comes as the kiwi dollar is swept up in a downturn for commodity based currencies, with oil, iron ore and copper prices falling.
"The market is waiting for that information - the kiwi is clearly under duress here," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "We are a commodity currency and we all know there's a pending milk announcement where we're expecting the payout to go sub $5."
Tomorrow's announcement precedes the New Zealand Reserve Bank's policy review on Thursday, where governor Graeme Wheeler is expected to keep the key rate unchanged, while trimming his forecast for future rate hikes.
