The New Zealand dollar jumped almost 2 US cents after whole milk powder prices soared 19.2 percent in the GlobalDairyTrade auction overnight, stoking optimism Fonterra Cooperative Group may meet its forecast payout to dairy farmers, helping underpin economic growth.
The kiwi surged as high as 74.36 US cents, from around 72.50 cents ahead of the auction result, as traders who had expected the currency to decline changed their positions. The local currency was trading at 73.59 US cents at 8am in Wellington, from 72.04 cents at 5pm yesterday.
The increase in whole milk powder makes it more likely Fonterra can reach its forecast payout to farmers this season of $4.70 per kilogram milksolids, with AgriHQ raising its estimate following the auction by 15 cents to $4.55/kgMS. Fonterra announced last week it would be reducing the volume of product sold on GDT across the remainder of this season, as dry conditions crimp supply. Prices may increase further, given New Zealand is the world's largest supplier of whole milk powder, AgriHQ said.
"That milk powder auction was pretty stellar," said OMF senior dealer, foreign exchange, Martin Rudings. "The kiwi popped after the auction. The higher price they are getting for milk powder means that the payout that's estimated from Fonterra is getting close to being real."
OMF's Rudings said most traders had 'short' positions heading into the auction, betting the kiwi would decline in value as the US dollar gains on the back of a strengthening economy and amid speculation the New Zealand Reserve Bank could cut interest rates after Australia cut its benchmark to a record low yesterday. Many had so-called 'stop loss' positions at 73 US cents, prompting them to buy the currency when it reached that level, he said.
"When it got through there it was a scramble to buy kiwi to fill those orders," Rudings said. That prompted the kiwi to gap higher, he said.
In New Zealand today, Auckland real estate agency Barfoot - Thompson is scheduled to publish its latest house price data at 10am, Statistics NZ releases labour market data for the fourth quarter of 2014 at 10:45am and Reserve Bank governor Graeme Wheeler gives his first speech of the year in Christchurch at 1pm.
The New Zealand dollar gained to 94.56 Australian cents from 94 cents yesterday after the Reserve Bank of Australia cut its benchmark interest rate to 2.25 percent.
The local currency rose to 64.08 euro cents from 63.57 cents yesterday, advanced to 48.58 British pence from 47.94 pence and increased to 86.50 yen from 84.45 yen. The trade-weighted index increased to 76.24 from 75.02 yesterday.