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New Zealand Dollar Soars on Exports Outlook, USD Sinks Amid Bets on Dovish Fed

The New Zealand Dollar pushed higher as a forecast for close-to-record dairy prices boosted the outlook for the export sector while the US Dollar tumbled as traders sold the greenback against higher-yielding currencies, betting the Federal Reserve would not hike interest rates any time soon amid rising unemployment.

Key Overnight Developments

• New Zealand Dollar Soars on Exports Outlook, House Price Gains
• Australian Home Loans Advance in September on Government Grants
• US Dollar Sinks as Jobless Rate, Bullard Comments Dim Rates Forecast

Critical Levels



The Euro gapped up at the weekly trading open and pushed higher throughout the overnight session, adding as much as 0.7% against the US Dollar. The British Pound followed suit, reaching as high as 1.6736 against the greenback. USD was broadly weaker as Asian traders reacted to Friday’s surge in the US unemployment rate, betting that the Federal Reserve will keep rates at record lows for a the foreseeable future to leave the US unit as an attractive funding currency for carry trades. Comments from the Fed’s James Bullard helped push the Dollar lower; the St. Louis branch chief reminded markets that the US monetary authority has historically waited for “jobs growth” to raise interest rates, which by his estimation translated into “the first half of 2012.”

Asia Session Highlights



The New Zealand Dollar soared after Fonterra Cooperative Group Ltd, the world’s largest dairy exporter, raised its forecast for milk prices to the second-highest level on record. Dairy is New Zealand’s top export commodity, and overseas shipments account for over 30% of the economy’s total output, raising hopes that the smaller antipodean nation will grow faster than originally expected and may move to raise interest rates sooner than the central bank’s latest forecast pointing to the second half of next year. Separately, House Prices grew 0.2% in October, rising for the first time since June 2008 according to Quotable Value New Zealand Ltd. (QV), the government’s property valuation agency. Lackluster supply rather than buoyant demand looks to have been the driving force behind the increase however, with QV valuation manager Glenda Whitehead saying “The continued shortage of properties is leading to an imbalance in the market.”

In Australia, Home Loans surged 5.1% in September, topping expectations for a 3.0% increase. The details of the report look encouraging: loans to owner-occupiers led the metric higher, adding 6.7%, while loans to start new construction surged 6.1%. First-time property buyers accounted for 26.1% of new demand in September - up from 24.7% in the previous month - hinting that the government’s A$21000 grants for new entrants into the market is continuing to help stoke demand. The outcome may hint at Australians’ resilience in the face of higher borrowing costs after the central bank raised interest rates for the second consecutive month in November, opening the door for RBA Governor Glenn Stevens and company to continue to “lessen gradually the degree of monetary stimulus” with another increase in December. Traders seem unconvinced as yet, however, with a Credit Suisse gauge of priced-in rate hike expectations showing the markets see just a 67% chance of further tightening in 2009.


Euro Session: What to Expect



Germany’s Trade Balance surplus is expected to widen to 11.3 billion euro in September, while the broader Current Account surplus that includes cross-border investment money flows in addition to trade in goods and services is set to expand to 9.3 billion euro. The improvement is expected to come courtesy of a 2.5% uptick in exports after overseas sales dropped -2.8% in August. Exports have seen a shallow rebound since bottoming in April as close to $2 trillion in global fiscal stimulus helped underpin foreign demand for German manufactured goods. Indeed, the pace of contraction in Industrial Production likely moderated to -14.4% in the year to September, the slowest since December 2008. Looking beyond month-to-month volatility, however, the trend in Germany’s external position has pointed lower since late 2007, with the current release set to fall firmly along the same trajectory. Indeed, a survey of economists polled by Bloomberg calls for the Current Account to average about 4.25% of GDP this year and through 2010, the smallest contribution to Germany’s total output in 6 years.

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