Milk-to-Lamb Rally to Buoy Best-to-Worst Kiwi: Chart of the Day


Pricier lamb and China’s increasing thirst for milk signal New Zealand’s dollar may halt the declines since July that turned the world’s best-performing major currency into the worst.

The CHART OF THE DAY shows the kiwi’s retreat from within one cent of a record versus the U.S. dollar last month as a glut of milk supply drove down dairy prices, while a seasonal lull impacted livestock, as tracked by Commonwealth Bank of Australia indexes. The lower panel shows China’s consumption of whole-milk powder -- New Zealand’s biggest export -- now exceeds half the world’s total, while a shift by farmers to dairy production has reduced the national sheep flock to a 70-year low.

“Constrained supply of lamb meat is going to put upward pressure on prices,” said Nathan Penny, an Auckland-based rural economist at ASB Bank Ltd., a subsidiary of CBA. “Milk demand is still growing, particularly in China. Setting other factors aside, recovering commodity prices should provide some support for the New Zealand dollar into year-end.”

Meat and edible offal made up about 11 percent of New Zealand’s NZ$51.2 billion ($43.4 billion) in merchandize exports in the 12 months to June, the biggest slice after dairy’s 31 percent, according to the latest data available from the nation’s statistics bureau. Shipments to China surged 50 percent compared with the previous 12-month period, making up nearly a fourth of total exports.

ASB, which shares currency forecasts with CBA, sees the New Zealand dollar ending the year at 85 U.S. cents, from 84.69 at 10:49 a.m. in Wellington. The median forecast among more than 40 of its peers surveyed by Bloomberg News predicts a decline to 84 cents.

Even after the 3.2 percent slide since the end of June, the worst among major peers this quarter, the kiwi remains the best performer versus the greenback since the end of 2008. The U.S. Federal Reserve slashed borrowing costs to near zero that year before embarking on three rounds of quantitative easing that drove some investors to New Zealand assets in a hunt for yield. The South Pacific nation has the developed world’s highest benchmark interest rate at 3.5 percent.

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To contact the editors responsible for this story: Garfield Reynolds at Jonathan Annells, Lee Miller

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