NZD/USD Fundamental Forecast – September 19, 2016

The NZD/USD is completely flat this morning with little volume as traders prepare for the central bank meeting next week. The kiwi is trading at 0.7314 near the lower end of its trading range as the US dollar remains strong on the possibility of a rate increase.

There is no data due in New Zealand until the middle of the week but the big attraction will be the livestock prices as meat returns to the auction block. Rabobank has warned beef producers to look beyond the current high prices. In a new report on the New Zealand and Australian beef industry, Rabobank animal protein analyst Matthew Costello said farmgate prices were expected to hold around current levels in the short-term but will come under pressure from a global hike in protein production in the lead up to 2020.  However, prices were still expected to be higher than the historic average, he said.

A shortage of cattle for the domestic market was also fueling prices. But the US domestic market was “very soft” and potentially would put pressure on export returns, Wilson said.  The strong local market had not been supported by the export schedule so margins were tightening for cattle farmers. The exchange rate is also set to depress export lamb returns this season, said Silver Fern Farms’ Hamilton.

“The season doesn’t start for another month or so, and the first big selling period is the chilled Christmas market in the UK. That currency this time last year was NZ43c (to the British pound), now it’s 55c. That’s close to 30 per cent worse in the currency for selling into the UK.”

More than 50 per cent of New Zealand’s lamb legs are exported to UK retail stores.  Hamilton said following the UK vote to exit the European Union, New Zealand lamb would be competing against British lamb exports in Europe. UK lamb production was lifting as farmers tried to offset the post-Brexit weaker pound.  “So we’ll be competing against UK lamb when we wouldn’t historically be and bigger numbers out of the UK,” Hamilton said.

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 September 19, 2016

Government Bond Auctions

Date Time Country Auction

Sep 19 11:00 Belgium Holds OLO auction

Sep 20 11:30 UK Jul 2047 Gilt

Sep 21 10:30 Denmark Holds bond auction

Sep 21 11:03 Sweden Holds bond auction

Sep 21 11:30 Germany Eur 4bn 0% Oct 2021 Bobl

Sep 22 17:20 Italy Announces details of bond auction