New Zealand key dairy prices remained unchanged, raise scope for RBNZ rate cut

New Zealand dairy prices remained unchanged at the latest Global Dairy Trade (GDT), the fourth auction of 2016/17, following a 0.4 percent decline in prices previously. Dairy prices have not seen an increase in any of the last three auctions. Weak GDT data will slightly increase the potential for an RBNZ rate cut.

The latest production figures suggest milk production has fallen sharply in New Zealand with a 10 percent annual decline in the year to June. Whole milk Powder prices however registered a 1.9 percent increase.

With no immediate sign of strong improvement in the prices, ANZ economists see the current price levels as implying that Fonterra will have to downgrade its current milk price forecast of $4.25 per kilogram of milk solids for the current season when this forecast is reviewed next month.

The Reserve Bank of New Zealand (RBNZ) will remain very sensitive to overall trends in the terms of trade. The recent disappointing performance and stresses in the dairy sector along with a weaker than expected second quarter CPI release and fresh controls on property lending market raise speculation that the RBNZ will cut interest rates on the August 10 meeting.