Once billed as the hottest currency trade this year, New Zealand's dollar is set to stumble, tripped up by spilled milk.
"Since peaking in February this year, international dairy prices per Fonterra Global Dairy Trade (GDT) auction have fallen by almost 50 percent," Morgan Stanley said in a note Tuesday, noting that dairy products are New Zealand's largest export, accounting for 26.4 percent of the total.
"Due to New Zealand's specialization in whole milk powder (WMP) exports to China, we expect the fall in price and import demand to weigh on the New Zealand dollar," the note said.
It's a turnaround from the beginning of the year, when analysts had expected strong gains in the kiwi. BK Asset Management in January called the New Zealand dollar, also known as the kiwi, one of its favorite trades for the year, citing expectations the central bank would hike interest rates and increased demand for "soft commodities."
After starting the year around $0.8221, the kiwi climbed to highs of over $0.88 in July, but it has since stumbled, fetching around $0.79 in early Asia trade Wednesday.