NZ dollar gains as Fonterra offers farmer support, primps dividend while cutting forecast

The New Zealand dollar gained after Fonterra slashed its milk payout forecast as expected while offering interest-free loans and a slightly improved dividend to its farmers to soften the blow.

The kiwi rose to 65.52 US cents as at 5pm in Wellington, from 65.43 cents before the Fonterra statement and from 65.42 cents late yesterday. The trade-weighted index advanced to 70 from 69.83.

Fonterra cut its farmgate milk price for the 2015/2016 season by $1.40 to $3.85 per kilogram of milk solids after being surprised by the persistent global imbalance between demand and supply fro New Zealand’s biggest export. At the same time it will offer up to $430 million in interest-free support to its farmers in the first half of the season and forecast improved earnings of 40-50 cents a share, implying a slightly improved dividend.

“The market was expecting something in the $3.50-$4 range so Fonterra has just joined the rest of the economists,” said Imre Speizer, strategist at Westpac Banking Corp. The slightly higher dividend, which Westpac estimates at 32 cents a share, and farmer lending, “were two small pluses, so the kiwi bounces.”

Dairy product prices “are still in a falling trend and with no sign of a bottom,” he said.

A larger move is possible on Friday in the US, where non-farm payrolls for July are forecast to show the world’s biggest economy added 225,000 jobs last month, up from 223,00 in June.

There’s potential for a bigger-than-usual reaction “because it is so close to a potential Federal Reserve hike date” in September, Speizer said.

The kiwi rose to 42.29 British pence from 41.84 late yesterday.

The pound was broadly weaker after the Bank of England left its policy rate unchanged at 0.5 percent as expected but also released minutes of its meeting that showed only one of nine members favoured raising interest rates. A separate report showed it sees inflation at 0.3 percent this year, half the pace it had previously projected.

The local currency traded at 60.08 euro cents from 59.92 cents late yesterday and rose to 81.89 yen from 81.58 yen. The kiwi was little changed at 89.08 Australian cents from 89.13 cents yesterday, and rose to 4.0742 Chinese yuan from 4.0598 yuan yesterday.

New Zealand’s two-year swap rate was unchanged at 2.88 percent from yesterday, and the 10-year swap decreased two basis points to 3.68 percent.

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