NZD/USD Fundamental Forecast – August 26, 2016

The NZD/USD is trading in the green this morning at 0.7318 with no support. The kiwi like all other currencies is on hold ahead of Janet Yellen’s speech at Jackson hole. There has been a void of data in Asia this week and little to help the currency direction.

Lloyds noted recently that “For now, economic data from New Zealand have shown little sign of improvement. Two-year inflation expectations are anchored near all-time lows at 1.65%. Meanwhile, earnings growth in Q2 was muted, diary prices a key export market remain under pressure and business confidence is subdued. Similarly, the outlook for global demand has weighed on the external outlook.”

Dairy co-operative Fonterra has raised its forecast payout to dairy farmers. Its forecast has risen by 50 cents per kilogram of milks solids, taking the price to $4.75 for the current season. When combined with the forecast dividend of between 50 to 60 cents a share, the total payout to Fonterra’s approximately 10,500 farmers is estimated at $5.25 to $5.35 per kilo.

Most farmers need about $5 per kilo of milk solids cover costs. The forecast increase follows a sharp improvement in dairy prices, which have risen by more than 20 percent in the last two GlobalDairyTrade auctions. Fonterra chair John Wilson said while global milk prices remained at unrealistically low levels, global milk production had declined.

Earlier this week New Zealand has posted its first monthly trade deficit of 2016, with a fall in meat and dairy exports putting a dent in earnings. Official figures show a deficit of $433 million in July, compared with a surplus of $110m the month before.

Exports were down about 5 percent on a year ago, reflecting weaker agricultural export prices. But import costs were down 10 percent, under the influence of cheaper oil, helping to shrink the annual deficit to $3 billion.

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Upcoming Economic Events that you should be monitoring:

August 26, 2016

Government Bond Auctions

Date Time Country Auction

Aug 24 10:03 Sweden Holds bond auction

Aug 24 10:30 Germany Eur 4bn 0% Oct 2021 Bobl

Aug 24 18:00 US Holds 2yr FRN auction & 5yr note auction

Aug 25 18:00 US Holds 7yr note auction

Aug 26 10:10 Italy Holds zero coupon