Morning commentary from CBA on the Australian and New Zealand dollars:
AUD/USD eased back below 0.7000 overnight. But AUD still has upside from here.
- The forces pushing AUD/USD down in March and April have faded.
- In our view, the fundamentals for AUD remain solid.
- Consequently we expect AUD to consolidate in the 0.7400-0.7000 range in the coming weeks and end 2018 high at 0.7800
NZD/USD eased modestly overnight after yesterday's gains. But NZD lifted slightly after Fonterra published its milk price forecast one day earlier than expected.
- Fonterra's estimate for the milk price for the current 2017/18 season was increased from $NZ 0.55 per kilogram to $NZ 8.75 per kilogram.
- The milk price for the 2018/19 seasons is estimated to be a very healthy $NZ 7.00 per kilogram (consensus: $NZ 8.80 per kilogram).
- This is good news for New Zealand and especially the NZD. As New Zealand's largest export. a higher milk price will increase New Zealand's terms of trade and support the NZD. Consequently, we think the resent weakness in NZD will come to an end and see NZD push higher to 0.71 in coming weeks.
- AUD/NZD is likely to go through a period of consolidation after its four New Zealand cent increase in the past month.
Note - post on the Fonterra milk price forecast is here from earlier:
