Today’s dairy auction likely to be key influencer of Kiwi

Performance of Kiwi has lagged its other commodity peers such as Australian Dollar and Canadian Dollar, largely due to further rate cuts of 25 basis points by Reserve bank of New Zealand (RBNZ). Aussie this year is up 2.5% against Dollar and loonie is up 3.4%. Compared to that Kiwi is down -2.6% this year. With last week’s bold action, RBNZ has shown that it stands ready to act beyond expectations to boost economy. Previously it had indicated rate might stay at 2.5% quite long but reduced further.

While RBNZ’s action likely to weigh over Kiwi, it might gain ground if underlying economics improve. For that to improve, price of dairy products need to improve, which is New Zealand’s biggest exporting commodity.

Today global dairy auction is scheduled and the graph shows how the price fluctuated in the previous auctions.

In last auction held in February, price rose by 1.4%, however in recent times the auction has been rather disappointing. Price has dropped in past seven out of ten auctions and last time of any significant gains, was back in September/October period last year, when at one auction price rose by more than 15%.

Last time when auction result turned positive, New Zealand Dollar confirmed a bottom around 0.655 area before moving to as high as 0.682 area.

Any big upside in the auction may result in Kiwi forming a bottom. Kiwi is currently trading at 0.665 against Dollar.