Opinion: Fonterra payout key for Kiwi

By BNZ Currency Strategist Danica Hampton The NZD/USD spent the night trading choppily within a 0.5250-0.5350 range. Early in the night, NZD/USD was dragged up towards 0.5350 benefiting from a rebound risk appetite and a bout of USD weakness. Asian equities surged after Japan announced plans to allow the government-backed Development Bank of Japan to buy corporate equity. Germany's IFO survey also showed a stronger than expected rebound in business confidence. However, the USD weakness didn't last long. EUR/USD slipped swiftly from above 1.3300 to below 1.3150 after an independent advisory group warned that the ECB was likely to cut rates 50bps in March and amid reports the Austrian government was seeking assistance from the European Union. Last night's US data showed that Conference Board consumer confidence has fallen to its lowest level on record and this did little to inspire confidence in the global economic outlook. The deteriorating global backdrop, combined with some NZD selling from real-money accounts, saw NZD/USD knocked back towards 0.5250. Locally, the focus is on dairy giant Fonterra, who is expected to announce a cut to its forecasted payout for the 2008/09 season today (12.00 noon). The current payout forecast is NZ$6.00/kg, but it's expected to be revised down to NZ$5.20/kg or lower. Across the Tasman, Q4's CPI will be closely watched (13:30pm). Headline CPI is expected to fall 0.4%q/q, while the underlying measures of inflation are expected to remain around 0.8%q/q. It's difficult to get too excited about NZD/USD while it trades within familiar ranges and we expect the consolidation to continue today. We suspect the topside will be limited by 0.5350. On the downside, solid support is expected below 0.5200 and a convincing break below the 0.5150-0.5170 region is needed to suggest the downtrend is gaining traction again. Currencies consolidated within familiar ranges last night, as investors digested the mix of an upbeat German IFO, soft US consumer confidence and firmer US equities. Early in the night, the USD weakened a little as risk appetite benefited from a strong surge in Asian equities after Japan announced plans to allow the government-backed Development Bank of Japan to buy corporate equity. Germany's IFO survey also printed on the stronger side of expectations. The business climate index climbed to 83.0 in January (vs. 81.0 forecast) and the expectations index climbed to 79.4 (vs. 77.5 forecast). While EUR/USD had a brief look above 1.3300, the strength didn't last long. EUR/USD slipped swiftly from above 1.3300 to below 1.3150 as the night progressed. An independent advisory group warned that the ECB was likely to cut another 50bps in March and the Austrian government is reportedly seeking assistance from the European Union to prop up the financial system. European equities closed down slightly; the FTSE fell 0.4% and the German DAX dropped 0.08%. Steady selling of EUR/GBP provided a bit of a prop for GBP/USD, which spent most of the night within a 1.4000-1.4250 range. Media reports suggesting the Bank of England is in no hurry to cut interest rates to zero and highlighting the problems associated with quantitative easing also may have also helped support GBP/USD. Last night's US data did little to inspire confidence about the global economic outlook. The Conference Board consumer confidence index fell to 37.7 in January "“ the lowest level on record. In a separate report, the S&P/Case-Shiller house price index fell 18.2% from a year earlier "“ the worst since the series began in 2001. Despite the soft US data, US equity markets are clinging to small gains. Investors found some solace as earning reports from both States Steel and American Express managed to positively surprise investors. The S&P500 is currently up 1.0%. It's likely that currencies will remain choppy in coming weeks as continuing bad news on economic activity from the end of 2008 weighs on investor risk-appetite but fresh policy action by governments and central banks keep some hope of economic recovery alive. Next focus globally is the FOMC decision. Although the Fed is expected to keep rates on hold, investors will be looking for clues as to how exactly the Fed intends to carry out quantitative easing. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.