Back
5 Aug 2013
Kiwi takes big hit on Fonterra dairy recall
FXstreet.com (Barcelona) - The New Zealand Dollar took a big hit through interbank trading, after news emerged over the weekend after Fonterra (world's largest dairy exporter) warned that a contaminated ingredient had been found on milk products, with immediate bans called in China, Russia, Thailand, etc.
Bloomberg cited New Zealand's Ministry for Primary Industries in an e-mailed statement in Wellington yesterday, saying: “We understand that China has suspended imports of all whey protein and milk-based powder sourced from Fonterra, whether exported from New Zealand or Australia.” Fonterra warned on Aug. 3, as Bloomberg expands, that "three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause a rare illness called botulism."
This is the second time a dairy contamination issue hits Fonterra, after reports emerged last January about traces of dicyandiamde, a potentially toxic chemical used in fertilizer, in some of its dairy products.
China's product safety agency has asked New Zealand to take immediate measures to "prevent the products in question from harming the health of Chinese consumers".
A statement by China's General Administration of Quality Supervision, Inspection and Quarantine, and cited by Reuters, read: "The administration has asked importers to immediately recall any possibly contaminated products and has required all local quarantine and inspection bodies to further strengthen inspection and supervision of New Zealand dairy products exported to China."
What are the NZD prospects after the news?
The New Zealand economy strongly relies on exports to China, largest trading partner, to keep the economy as healthy as it is. Dairy products represent about 25% of New Zealand's total sales, which means they account for over a third of the economic output. Bloomberg quoted Paul Bloxham, chief Australia and New Zealand economist at HSBC, saying: "This could be quite a big deal for New Zealand’s prospects, certainly in the near term", adding that “This is likely to have an influence in the short run on the New Zealand dollar and on markets in New Zealand on Monday.”
The new few weeks will be critical, as the country faces a major reputational risk, according to Stephen Toplis, head of research at Bank of New Zealand. “It’s reputational risk more than anything, and that will be determined by what happens over the coming weeks in terms of how the company responds.”
Another big question for traders now will be whether or not this setback has some spill-over effects over the hawkish monetary stance by the Reserve Bank of New Zealand. The Central Bank, on its latest policy statement, said: "Growth in the New Zealand economy is picking up and, although uneven, is becoming more widespread across sectors", adding that "a removal of monetary stimulus will likely be needed in the future."
Bloomberg cited New Zealand's Ministry for Primary Industries in an e-mailed statement in Wellington yesterday, saying: “We understand that China has suspended imports of all whey protein and milk-based powder sourced from Fonterra, whether exported from New Zealand or Australia.” Fonterra warned on Aug. 3, as Bloomberg expands, that "three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause a rare illness called botulism."
This is the second time a dairy contamination issue hits Fonterra, after reports emerged last January about traces of dicyandiamde, a potentially toxic chemical used in fertilizer, in some of its dairy products.
China's product safety agency has asked New Zealand to take immediate measures to "prevent the products in question from harming the health of Chinese consumers".
A statement by China's General Administration of Quality Supervision, Inspection and Quarantine, and cited by Reuters, read: "The administration has asked importers to immediately recall any possibly contaminated products and has required all local quarantine and inspection bodies to further strengthen inspection and supervision of New Zealand dairy products exported to China."
What are the NZD prospects after the news?
The New Zealand economy strongly relies on exports to China, largest trading partner, to keep the economy as healthy as it is. Dairy products represent about 25% of New Zealand's total sales, which means they account for over a third of the economic output. Bloomberg quoted Paul Bloxham, chief Australia and New Zealand economist at HSBC, saying: "This could be quite a big deal for New Zealand’s prospects, certainly in the near term", adding that “This is likely to have an influence in the short run on the New Zealand dollar and on markets in New Zealand on Monday.”
The new few weeks will be critical, as the country faces a major reputational risk, according to Stephen Toplis, head of research at Bank of New Zealand. “It’s reputational risk more than anything, and that will be determined by what happens over the coming weeks in terms of how the company responds.”
Another big question for traders now will be whether or not this setback has some spill-over effects over the hawkish monetary stance by the Reserve Bank of New Zealand. The Central Bank, on its latest policy statement, said: "Growth in the New Zealand economy is picking up and, although uneven, is becoming more widespread across sectors", adding that "a removal of monetary stimulus will likely be needed in the future."