Kiwi Strengthens on Upbeat Dairy price View by ASB Bank

Kiwi Strengthens on Upbeat Dairy price View by ASB Bank
November 21, 2019


The Kiwi dollar is strengthening against the yen on the backdrop of an increase in the average dairy prices at the latest auction conducted on Tuesday. Interestingly, Japan’s Ministry of Finance reported a trade deficit for October. The NZD/JPY pair traded between a narrow range of 69.45 and 69.85 in the past 24 hours.

For the fifth consecutive time, international dairy prices increased at the fortnightly auction conducted yesterday as a shortage in global supply offered support for the prices. The GDT (Global Dairy Trade) Price Index rose 1.7%, with average price of dairy products increasing to $3,481 per ton. Notably, the average price of dairy products rose 3.7% in the earlier auction.

Commenting on the price rise, Robert Gibson, an analyst at NZX said, “It is strength in the milk powders that have driven the latest increase. This is likely due to Northern Hemisphere production being at a seasonally low point in the year, and milk supplies continuing to wane from Southern Hemisphere countries, with New Zealand starting to ease back on the previous year’s supplies too.”

Prices for whole milk powder, which is one of the most watched dairy products traded in the auction, increased 2.2% to the highest level in nearly three years. Likewise, the price of skim milk powder surged 3.3%. Overall, 37,968 tons were traded in the latest auction, down 1.8% from the earlier ones. The dairy sector accounts for roughly 7% of the country’s GDP (Gross Domestic Product). GDT auction is owned by New Zealand based Fonterra Co-operative Group Ltd but operates as an independent body.

Following the dairy auction, ASB Bank, a financial institution owned by the Commonwealth Bank of Australia, has upwardly revised its 2019/20 milk price outlook by $0.50 to $7.50 per kilogram. Notably, farmgate milk prices have crossed above $7 per kilogram only three times earlier: 2007-8 ($7.59), 2010-11 ($7.60) and 2013-14 ($8.40).

Earlier yesterday, the Japanese Ministry of Finance reported a trade deficit of ¥0.03 trillion in October, versus analysts’ expectation of surplus ¥0.26 trillion.  However, the reported figure was lower than the ¥0.06 trillion trade deficit posted in September. While exports declined 1.7% m-o-m to ¥6.328 trillion, imports declined 2.2% m-o-m to ¥6.363 trillion.

The strong dairy prices and positive outlook by ASB Bank are anticipated to turn the New Zealand dollar bullish in the short-term.

Technically, the NZD/JPY currency pair remains range-bound between 69.20 and 69.90. The currency pair is also trading above its 50-day moving average. Furthermore, the momentum indicator remains flat. Therefore, we are anticipating the NZD/JPY pair to remain range-bound with slight bullish bias in the short-term.

NZD - technical analysis - 21st Nov 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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