NZD/USD down to one-month lows on NZ milk powder contamination

New Zealand dollar started the week with a decline to almost one-month lows against its US peer, as China banned the import of milk powder from New Zealands Fonterra Cooperative Group Ltd.

NZD/USD recorded a session low at 0.7734 at 2:20 GMT, after which consolidation followed at 0.7790. Support was expected in the range 0.7710-0.7725, while resistance was to be met in the zone around 0.7800.

Fonterra, the largest dairy exporter globally, said on August 3rd that three batches of a whey protein made at a New Zealand plant last year could contain bacteria that can cause botulism. There have been no reports of any illness, Bloomberg reported. The company had sold contaminated whey protein to eight different buyers in China, Malaysia, Vietnam, Thailand and Saudi Arabia. Almost 90% of China’s 1.9 billion USD in milk-powder imports last year came from New Zealand, while a prolonged ban could trigger a shortage of dairy products in China, the New York Times said. There also have been confirmation by Fonterra, that a unit of Coca-Cola, the largest soft-drink producer worldwide, and animal feed producers in Australia and New Zealand had also been affected.

“Dairy exports are a big deal, and exports to China are a big deal for dairy exports,” said Imre Speizer, a markets strategist at Westpac Banking Corp. (WBC) in Auckland, cited by Bloomberg. “If China puts a ban on officially and it lasts for some significant period of time, you’ll probably see further negative reaction in the kiwi.” China is New Zealands largest export partner.

Additionally, market players cut their bets to 16% that the Reserve Bank of New Zealand will raise interest rates from a record low 2.5% by the end of this year, while the odds were 28% as of August 2nd.

Elsewhere, the kiwi dollar was trading lower against its Australian peer, as AUD/NZD cross advanced 0.37% to 1.1410 at 7:05 GMT. Australian currency has declined by 13% over the past three months, the worst performer among 10 developed-market currencies, tracked by Bloomberg Correlation-Weighted Indexes, while the New Zealand dollar is the second largest decliner, reducing its value by 7%.

Later on trading Monday the Institute for Supply Management in the United States was to release data on activity in the non-manufacturing sector.