Markets wrap: NZ dollar weaker after RBNZ says rates have peaked

The New Zealand dollar has stabilised at a lower level, and is expected to fall further, after the Reserve Bank signalled it had finished raising interest rates.

The kiwi fell from about US62.5c to US60.5c after the Reserve Bank Te Pūtea Matua lifted the official cash rate by 25 basis points to 5.5% a week ago and signalled no further tightening would be needed.

“We have seen quite a marked weakening in the New Zealand dollar,” said ASB senior economist Kim Mundy. “Pretty quickly, it lost about 2c and it’s still 2c lower today so it hasn’t made any gains since that decision.”

Mundy said the New Zealand dollar may fall to around US58c cents by the middle of the year as global economic growth slows.

“Commodity currencies, like the kiwi dollar and aussie dollar, never do well in those circumstances so we do think the kiwi can continue to just sort of grind a bit lower,” she said.

The focus in currency markets was moving from how much further central banks may tighten to when they might start to cut interest rates and how fast they would cut, she said.

“You’re seeing the whole curve being looked at, at the moment, and it’s not only in New Zealand. We’ve seen a lot of market pricing for rate cuts in the US taken out, so that influences the US dollar. There’s quite a lot going on.”

Mundy said interest rate markets were toying with the idea of another rate hike by the Reserve Bank this year but were not convinced, pricing in a 40% chance of one more hike.

Following the Reserve Bank’s latest decision, ASB now expects the official cash rate (OCR) will stay at 5.5% until May next year.

“We’re seeing signs now that inflation has probably peaked, but it is still at very high levels,” Mundy said. “We think the Reserve Bank is going to want to be very, very certain that inflation is going to return to target before it even considers starting to cut the OCR.”

Kiwifruit exporter Zespri reported a 34% drop in annual profit as it struggled with fruit quality.

Zespri’s profit dropped to $237.8 million from a record $361.5m last year, the company said in a statement on the Unlisted Securities Exchange. Revenue fell 5.6% to $4.22 billion.

Chief executive Dan Mathieson said the result reflected a challenging period for the kiwifruit industry, with grower returns down on the back of fruit quality issues that have primarily been driven by the industry’s severe labour shortage, along with cost increases and supply chain challenges.

Costs related to fruit quality issues increased to $534m from $307m, he said.

“This was one of our toughest-ever seasons and the industry worked incredibly hard to deliver our fruit to market, despite facing an extraordinary number of challenges including a significant labour shortage,” he said.

“We continued to see strong demand and pricing in market. However, quality costs have significantly impacted grower returns which have dropped from the highs recorded in recent seasons.”

Growers were paid $5.78 a tray for green kiwifruit, down from $6.35 the previous season, while gold kiwifruit achieved $9.97 a tray, down from $11.51. The new RubyRed variety achieved the highest prices at $22.27 a tray.

Zespri’s shares last traded at $5.99 on the USX market, and have lost a third of their value over the past year.

The benchmark S&P/NZX 50 Index slipped 0.6%, or 65.705 points, to 11,813.01 on Wednesday. On the broader market 61 stocks rose and 72 fell with $938m shares traded.

Broadband network company Chorus was the biggest stock traded by value with $160m of shares changing hands. Chorus fell 1.8% to $1.185.

Fletcher Building shed 0.6% to $5.02, adding to its 2.5% decline on Tuesday after a report showed new home building consents fell 26% in April compared with April last year.

Forsyth Barr analysts expect the building supplies and construction company to moderate the top end of its earnings guidance for this year as the construction market slows. Fletcher Building has said it expects full-year operating profit of $800m to $855m, excluding significant one-time items.

Residential building consents continued their slide in April with declines for both detached and higher density dwellings, Forsyth Barr analysts said in a note.

Detached consents were at their lowest level since early 2013 and 40% below their mid-2021 peak, while high density consents were 24% below their early-2022 peak, the analysts said.

Scott Technology gained 3.4% to $2.75 after the robotic machine-maker said it had won several new contracts as global demand for automation accelerated in response to labour challenges.

Chief executive John Kippenberger said the company had secured its first contract to supply an automated modular mining solution to Mineral Resources Ltd, valued at $12m.

The company’s European team had secured several new materials handling contracts, including a $3.2m solution for A-ware Food Group and a $1.5m contract with Colruyt, and the company was working with new dairy customer Incom Leone to deliver a multiline palletising system valued at $7m, he said.

Scott Technology had also signed a further contract with long-standing customer Midea for $6.5m, its third significant contract with the Midea Group this year, worth a total of $23m, he said.

Meanwhile, fertiliser affordability is starting to improve, according to a new report by agribusiness bank Rabobank.

In its latest Fertiliser Outlook report, Rabobank said global fertiliser prices started to trend higher in the first half of 2021 due to supply constraints resulting from the Covid-19 pandemic.

“Affordability deteriorated further when fertiliser prices set new record-high levels after Russia invaded Ukraine. By that time, reasonable commodities prices were the only reason unaffordability didn’t surpass the record set in 2009 during the global economic crisis,” the report said.

Rabobank said most fertiliser prices were gradually returning to their historical averages, and in some cases, like urea, current values were below historical levels already.

For the New Zealand market, report co-author Vitor Cacula Pistoia said further price cuts for fertilisers were expected over the remainder of 2023 – especially for phosphate fertilisers.

“Due to intrinsic characteristics, fertiliser price movements in New Zealand tend to lag behind those in international markets, and we anticipate the price falls we’ve seen in other regions will flow through to New Zealand prices over coming months,” he said.

“The last three years have seen growing price curves for fertilisers and now it is likely that prices in the remainder of 2023 and early 2024 will reduce if no other ‘Black Swan’ events take place. This shift in price trend will be crucial to offset the lower New Zealand agri commodity prices we’ve seen across recent months and to sustain margins on the positive side.”