NZD Drops After Milk Prices Fall

Soured by dairy prices and the likely moves of its central bank, the New Zealand dollar is tanking, falling 15 percent against the U.S. dollar to hit five-year lows.

One of the main culprits is the freefall in milk. Dairy exports make up a large part of New Zealand’s economy, and prices have fallen 40 percent since the start of March, according to Global Dairy Trade.

“That’s pretty disastrous, because it’s the lifeblood of New Zealand, so if their main export is falling in value, that’s going to have a direct impact on GDP as well as the incomes of farmers,” currency trader Kathy Lien of BK Asset Management said Thursday on CNBC’s “Trading Nation.” “So the currency trouble, and everyone thinks the Reserve Bank is going to respond with a rate cut next week.”

Indeed, the key question around the upcoming Reserve Bank of New Zealand decision has simply become: How big will the cut be?

And with New Zealand ready to reduce rates even as the U.S. Federal Reserve muses about raising them, the case against the New Zealand dollar, which is known affectionately as the “kiwi,” is clear.

via CNBC

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