Rebound In Dairy Prices Propel New Zealand Dollar

Rebound In Dairy Prices Propel New Zealand Dollar
July 17, 2019


The New Zealand dollar strengthened against its G10 rivals yesterday due to the release of better-than-anticipated consumer price index data and a rebound in global dairy prices. The strong data enabled the NZD/USD pair to rally from a low of 0.6566 to a high of 0.6738 in the past 24 hours.

During the Global Dairy Trade (GDT) auction conducted yesterday, dairy product prices increased 2.7%, following four consecutive price declines. The average traded price of dairy products was $3412/ton, compared with $3,302/ton two weeks ago. Nearly 25,000 tons of product was traded, an increase from 24,711 tons traded two weeks before.

Commenting on the rebound in dairy prices, NZX dairy analysts Robert Gibson and Amy Castleton said: “This follows four consecutive decreases in the index and was likely linked to tighter global milk supplies with demand at this event firming for milk powder, milk fats, and cheese. Milk powder prices strengthened in response to stronger demand from Southeast Asian countries and the Middle East.”

The price of whole milk, which has a significant impact on Fonterra’s farmgate milk price, rose 3.6% to $3,074 per ton.

Gibson and Castleton said, “This was the first lift in average prices for whole milk powder since March.”

The increase in dairy product prices started strengthening the Kiwi dollar yesterday.

According to Statistics New Zealand, in the second quarter of 2019, consumer price index (CPI) in New Zealand rose 0.6% on a q-o-q basis, compared with a 0.1% increase in the prior quarter. The reported figure was in line with analysts’ estimates. On a y-o-y basis, CPI increased 1.7%, compared with the 1.5% rise in the earlier quarter, and matching economists’ forecasts.  Almost all sectors recorded price rise, with household articles and services posting the largest gain of 2.5%. In particular, with a 4.8% increase in prices, furniture and furnishings were mainly responsible for the better performance of household articles and services. Transport gained 0.6%, led by a 5.8% increase in petrol prices.

Housing and household utilities recorded 0.7% on a q-o-q basis, fueled by a 1% increase in rental costs. Food prices increased 0.6%, mainly due to an increase in restaurant meals and ready-to-eat food (up 1.4%).

Still, economists were not impressed with the data because the main contributor for inflationary pressure was petrol and is likely to be a temporary increase. Furthermore, consumer inflation continues to stay below the 2% mid-point of the central bank’s target range of 1% to 3%.

The rebound in dairy products prices and better-than-expected consumer price inflation is expected to keep the kiwi dollar bullish in the days to come.

Technically, the NZD/USD currency pair is moving within an ascending channel, as shown in the image below. Furthermore, the momentum indicator is rising. The currency pair is also trading above its 50-day moving average. As a result, we can expect the NZD/USD pair to remain bullish in the short-term.

NZD - techncial analysis - 17th July 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.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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