NZD/USD Weekly Fundamental Analysis – week of May 30, 2016

The NZD/USD dipped 1% to trade at 0.6741 as the US dollar continued to climb on rate expectations. Business confidence on Tuesday will confirm if the tick higher last month to 6.2 was a fluke. When you consider the ’14 peak was 70.8 and the ’15 high at 35.8, hopefully you’ll appreciate how much confidence has fallen since RBNZ embark on their rate easing cycle.

GDP prices (global dairy trade) continue to oscillate around zero each fortnight and currently sits at 2.6. Dairy prices will need to pick up if RBNZ get their wishes. The central bank is closely monitoring tradable inflation alongside the exchange rate to assess if rates need to be cut.

FONTERRA, the New Zealand co-operative and world’s biggest dairy exporter, has raised its milk price forecast for the coming year by the equivalent of 1.2p to 14.6p per liter. This year’s final price has been set at a miserable 13.4ppl compared with the 29ppl the co-op paid its members two years ago.

Chairman John Wilson explained said: “We are expecting global dairy pricing to gradually improve over the season as farmers globally reduce production in response to ongoing low milk prices, however we continue to urge caution with on-farm budgets.”

Chief executive Theo Spieling’s said that the long term fundamentals for global dairy remain positive with demand expected to increase by 2 to 3 per cent a year due to the growing world population, increasing middle classes in Asia, urbanization, and favorable demographics.

He went on: “In addition to global supply growth, we are seeing imports into major dairy markets improving compared to a year ago. China’s dairy consumption growth remains positive and its demand for imports has been steady over recent Global Dairy Trade (GDT) events.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week: