Following a decline in dairy prices, the New Zealand dollar dropped on Thursday, being dragged down by stronger US dollar as well, benefiting from rate-hike speculations.
The dairy prices saw the lowest point in nearly six years, bringing worries to agricultural sector of the country, when milk prices experienced a decline eight time in a row during Fonterra-organized auction. As for the Global Dairy Trade index, we could see a decrease of 5.9% to the lowest level since August 2009.
Vicechairman of Federated Farmers’ dairy industry group, Chris Lewis stated that he had expected prices to rebound two months ago and he is surprised that they are falling constantly. “Now we’re just in uncharted territory. It’s beyond words,” he added. He expects cash flow to be negative until October with most farmers having dried off their herds in May. “Farmers are definitely worried, that’d be an understatement.”
Moreover, the betting challenge on monetary policies of both countries continue with high intensity. As the Federal Reserve (Fed) is believed to tighten still this year, with traders speculating even on September, the Reserve Bank of New Zealand (RBNZ) is expected to choose rate-cut step as the next one. This only adds to kiwi’s downward path.
Bearish rally on kiwi is also helped by reiterating its overvaluation by RBNZ’s, being concerned over the actual exchange rate amid currency war era, when major economies prefer lower exchange rates of their national currencies.
From the fundamental point of view, we see the US dollar to strengthen further as kiwi seems to be undermined by RBNZ and greenback boosted by Fed’s rate-hike bets. Albeit we can experience weaker US dollar is the September’s rate-hike speculations are about to be postponed to December or early 2016, still the pressure remains stronger as market does not expect RBNZ to switch from its rhethoric of rate-cuts that soon.
From the technical point of view, we see a stronger support level now at $0.65815 or later at $0.62615, or $0.62 level. In case of correction, we would set take profits at $0.67433 or even later at $0.68491.
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