Latest Fonterra auction sees dairy prices declined 5.3% eroding some of the previous 'drought inspired' gains

The NZD/USD was one of the weakest performers over the past 24-hours, giving back much of the previous day’s gains. It trades around 0.8000 this morning.
The NZD/USD started to drift lower yesterday afternoon, after memories of the previous day’s weak US ISM data started to fade.
The USD was broadly solid overnight with the ‘risk sensitive’ NZD, CAD and AUD falling from favour.
In the early hours of this morning the details of the most recent (GDT) dairy auction were released. As we had anticipated, the results showed a modest further pullback in prices.
Average prices declined 5.3% from the previous fortnightly event. This is consistent with our view that NZ commodity prices will broadly remain a support for the NZD in the year ahead, but some of the recent ‘drought-inspired’ gains in diary prices will ease.
We hold a negative bias for dairy prices over coming months. However, prices remain 54% above year earlier levels. We also believe this result will not threaten Fonterra’s recent dairy payout forecast.
Post the results, the NZD/USD has found support in the crucial 0.7940-0.7980 window. This remains the key support area for today. Resistance is eyed at 0.8050.
The NZD was also broadly weaker on the crosses, except relative to the AUD where it managed to hold its own.
Relative to both the EUR and the GBP the NZD has returned to key support levels, at 0.6110, and 0.5230 respectively. If these levels fail to hold it would likely open the way to deeper declines on these crosses.
For today, we expect the release of the ANZ commodity price index to show world prices for NZ commodities dipping around 2%, consistent with the diary auction results. The key for the NZD/AUD cross will likely be this afternoon’s release of AU Q1 GDP.
Any disappointment would likely benefit the NZD/AUD, which currently sits around 0.8300.
Tonight, general USD sentiment (and by implication NZD/USD performance) will be driven by the US ADP employment report, as a precursor to Friday’s all important US non-farm payrolls release.
 
Source:  Interest