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  • NZD/USD is under pressure with the GDT Price Index dropping 2.9% with milk powders back 2.6%.
  • Deepening economic disruptions from the coronavirus weigh on the outlook for the bird. 
  • RBNZ still not a done deal as far as markets are concerned. 

NZDUSD is currently trading at 0.6386 and is down 0.78% on the day so far, travelling from a high of 0.6441 to a low of 0.6381. Despite the RBNZ’s hawkish projections, the bird continues to bleed out from the post-meeting highs. there is not a great deal of news out there to be a catalyst for the downside other than GDT Price Index down 2.9% and Moody’s cuts China forecast to 5.2% for 2020. 

Whole milk powder fell 2.6%

New Zealand’s key export product, whole milk powder, fell 2.6% and was matching yesterday’s futures market predictions of a 3% fall. Skimmed milk powder prices fell 2.6%, butter fell 3.9% (despite reduced volume for this auction), and anhydrous milk fats fell 5.5%, while cheddar cheese rose 5.3%. “Last night’s results are unsurprising given the continuing uncertainty regarding the Coronavirus outbreak, the previous GDT auction on 4 February also likely affected by such,” analysts at Westpac explained, adding that “the steps that China has taken to contain the outbreak – such as limiting the movements of people – have kept many factories closed, which has meant less demand for their inputs, including milk powder. North Asian demand at last night’s auction was lower than usual, but only slightly so.”

Markets typically softened overall but this was largely in part to the news whereby Apple announced it would fall short of its Q1 sales targets because of slower iPhone production and weaker demand in China. 

In other news, which is more positive for risk appetite, China announced further cuts to tariffs on US products including agricultural goods such as pork, beef and soybeans and crude oil and natural gas. “The tariff cuts are in addition to the cuts already announced as part of the Phase 1 deal, but are likely to be needed in order to achieve the USD200 billion of imports committed to as part of the Phase 1 deal,” analysts at ANZ Bank noted. 

RBNZ sentiment support for kiwi fading

For now, the RBNZ policy looks set to remain on hold. However, if evidence mounts that the impact from coronavirus is set to be significant, the RBNZ will likely be forced to react. Markets are starting to trade that assumption, although putting aside any risks stemming from the coronavirus, there would indeed appear to be reason for optimism in New Zealand.

“RBNZ this morning discussed the possibility that there could be a positive impetus on wage inflation and on CPI inflation. Policymakers also noted the effects of recent minimum wage increases, pay equity settlements and large collective agreements in the public sector,” analysts at Rabobank argued. However, it is not a done deal that the RBVZ will remain on hold and the coronavirus impact in tourism could be a highly damaging outcome for the economy. Tourism is a significant export for New Zealand and in recent years, Chinese visitors have made an key contribution to overall revenue. 


NZD/USD levels