New Zealand Dollar to US Dollar (NZD/USD) Exchange Rate Softer as Dairy Prices Expected to Fall

Although a rally in global stock markets had shored up the New Zealand Dollar (NZD) the commodity-correlated currency has since weakened across the board as traders await the results of the latest GlobalDairyTrade auction.

Reduced Safe-Haven Demand Boosted NZD/USD Exchange Rate

Markets and commodity-correlated currencies such as the New Zealand Dollar (NZD) have been enjoying a sustained rally so far this week, after dovish rhetoric from the Bank of Japan (BoJ) prompted the Nikkei Index to close up an impressive 7% on Monday.

While both the BoJ and the European Central Bank (ECB) appear poised to deliver further monetary loosening, in order to drive down the value of their respective safe-haven currencies and bolster domestic inflation, this has generally reassured traders in spite of concerns of a persistent global economic slowdown.

The resultant bullish turn in sentiment saw the New Zealand Dollar to US Dollar (NZD/USD) exchange rate recover some of its recent losses, particularly benefitting from the fact that US markets were closed for a holiday at the start of the week.
Some measure of uncertainty over the Fed’s outlook on interest rates following last week’s testimony from Fed Chair Janet Yellen has equally helped to push the US Dollar (USD) down against rivals, as safe-haven demand falters.

New Zealand Dollar Softened as Lower Dairy Price Forecast

Confidence in the New Zealand Dollar has generally declined, however, on Tuesday morning as investors brace for the results of the latest GlobalDairyTrade auction.

Expectations suggest that the value of milk solids will continue to diminish at this latest session, extending the downwards trend it entered at the start of the year and delivering a fresh blow to the prospects of the New Zealand economy.

With global demand for dairy still muted, evidenced by another severe contraction in Chinese imports in January, the domestic dairy trade is likely to remain under pressure in coming months as producers struggle to sustain themselves on the back of the persistent price slump.

As a result a weaker closing price at today’s auction is likely to push the NZD/USD exchange rate lower, having already ceded most of the last week’s gains ahead of the result.

In advance of the GlobalDairyTrade auction the US Dollar to New Zealand Dollar (USD/GBP) exchange rate is trending higher at 1.5132.

NZD/USD Exchange Rate Forecast to Slump with Stronger US Manufacturing Data

Later on Tuesday the February Empire Manufacturing Survey is expected to bolster demand for the US Dollar, as pundits anticipate a significant improvement in local economic conditions, which it turn would suggest greater robustness within the wider US economy.

Any improvement in the manufacturing sector is likely to encourage speculation that the Fed will resume its monetary tightening cycle sooner rather than later, lending support to the Federal Open Market Committee’s (FOMC) decision to hike interest rates in December.

Upcoming commentary from members of the FOMC could also provoke some additional volatility for the NZD/USD currency pair, with markets looking for further clarification of policymakers’ outlook on domestic monetary policy.
At the time of writing the NZD/USD exchange rate was trending lower at 0.6603.