Morgan Stanley’s latest on Asia FX says the NZD has further downside.

They cite:

  • Fall in price and import demand in whole milk powder (WMP) … dairy accounts for more than a quarter of New Zealand’s exports
  • Expect Fonterra to further reduce its payout forecast for 2014/15 (unless WMP prices recover or the NZD adjusts lower)
  • “We expect the recent peak in dairy prices, the lift of EU dairy quota and lower feed costs to increase global milk production. In particular, global dairy export volume is forecasted by the USDA to increase by 10% in 2014.”
  • “Weakness in dairy price and muted inflation levels will likely prevent the RBNZ from hiking for some time to come.”

While MS expects NZ to continue to dominate Chinese trade in WMP given their free trade agreement & the fact they specialize in WMP, they expect also that China will reduce demand for imports in the near term given excess inventories