NZD Drops After Milk Prices Fall

Soured by dairy prices and the likely moves of its central bank, the New Zealand dollar is tanking, falling 15 percent against the U.S. dollar to hit five-year lows.

One of the main culprits is the freefall in milk. Dairy exports make up a large part of New Zealand’s economy, and prices have fallen 40 percent since the start of March, according to Global Dairy Trade.

“That’s pretty disastrous, because it’s the lifeblood of New Zealand, so if their main export is falling in value, that’s going to have a direct impact on GDP as well as the incomes of farmers,” currency trader Kathy Lien of BK Asset Management said Thursday on CNBC’s “Trading Nation.” “So the currency trouble, and everyone thinks the Reserve Bank is going to respond with a rate cut next week.”

Indeed, the key question around the upcoming Reserve Bank of New Zealand decision has simply become: How big will the cut be?

And with New Zealand ready to reduce rates even as the U.S. Federal Reserve muses about raising them, the case against the New Zealand dollar, which is known affectionately as the “kiwi,” is clear.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza