New Zealand-Lamb trade forecasts.
NEW ZEALAND-THE LAMB RADE AND FORECASTS.
Lamb schedules have moved higher in spite of sharp rise in the value of the New Zealand dollar in recent weeks and Westpac Bank currency strategist Imre Speizer says there could be further good news ahead for farmers generally.
He believes the kiwi dollar will top out from its recent strength and will resume the earlier lower trend, specially against the US dollar, a positive for our farm products.
Speizer also believes the dollar is about to top out against the likes of the euro and yen, though future direction is harder to pick because of the problems facing those two economies.
The lamb schedule nearly always peaks by Christmas, then eases off through the early months of the new year, but lower stock levels have meant they have kept improving through the end of March, more than offsetting a near 14% lift in the kiwi/greenback cross recently.
Dairy product prices have also come off their lows since Christmas and the beef schedule has also firmed since the short term impact of higher dairy and beef herd culls in the United States several weeks ago.
Speizer says the Reserve Bank is determined to follow through on easier monetary conditions, highlighted by governor Alan Bollard trying to talk bank lending rates lower last week. Bollard also wants the currency to play its part in this, rather than having the TWI well above his RBNZ projections at 56.70 at time of writing, whereas projections are for it to average 52.6 about now and falling to 49.2 in the second half of the year.
The dollar slipped on Bollard’s comments but was up again at US0.5784 mid morning on Friday, as world investor risk appetite was boosted by encouraging news out of the G20 summit, a smaller than expected cut in Euro interest rates and the apparent relaxing of US accounting rules.
Westpac’s call is that if the RBNZ governor does not see lending rates where he wants them then he will cut the Official Cash Rate (OCR) by a further 50 basis points to 2.5% at the end of April, then possibly dropping it to 2% in following months. As the interest rate differential against other economies reduces, then the dollar can be expected to come down as well over time.
"We’re 75% confident of the dollar being at its medium term top, and a rate at US$0.47 over the next three months or so is still our call,’’ Speizer said.
Westpac’s view is predicated on another downward tilt for United States and world equities. The correlation between the US’s S&P500 stock index and the New Zealand dollar is as tight as it has been and this is expected to continue. Confident equity investors there means confident currency investors for the kiwi, and vice versa.
"There’s still a bit of risk around and weighing up the probabilities our 60/40 call is that stocks will have another fall.’’
The kiwi picked up to E0.4299on Friday morning, but Speizer said it was showing signs of turning and sees it falling back to below E0.39 over the next few months. However, he cautions that it is hard to pick, saying it’s a question of "which currency weakens the most"’.
A similar view surrounds the Japanese yen, against which the kiwi has come well off its recent lows, back up to Y57.51 on Friday. Japan has been hit harder than any of the major economies by the world recession. Speizer said the move on the cross rates over the next month was anyone’s guess, but longer term he says the dollar will retrace back below Y44.00.
