NZ, Canadian Dollars Rise as Corporate News-Flow Drives FX Markets

Talking Points:

• NZ Dollar Outperforms as Upbeat Dairy Exports Bets Bolster RBNZ Outlook
• Canadian Dollar Gains on M&A Flows After Burger King, Tim Hortons Deal
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The New Zealand Dollar outperformed in overnight trade, rising as much as 0.4 percent on average against its leading counterparts. The move followed the announcement of a partnership between dairy giant Fonterra and Chinese baby food manufacturer Beingmate to produce infant formula. Fonterra also said that despite “difficult market conditions” and lingering “downside risks”, its expected farm-gate milk price forecast remains unchanged at NZ$6/kg for the 2014-15 season.

China is New Zealand’s second-largest trading partner and dairy products account for close to 30 percent of island nation’s cross-border sales. With that in mind, traders likely interpreted supportive news-flow from the largest player in a formative sector of the economy as positive for growth trends as a whole. In turn, stronger overall performance may push the RBNZ off the sidelines and back into its rate-hike cycle sooner than otherwise expected, fueling capital inflows into the Kiwi.

The Canadian Dollar likewise advanced after US-based Burger King Worldwide Inc said it will buy Canada’s Tim Hortons Inc for US$11 billion, implying on-coming M&A capital flows favoring the Loonie in the pipeline. The deal’s supportive implications appear to run deeper however, with the mammoth transaction seemly representing a broadening “inversion” trend wherein US corporates seek to re-domicile abroad to take advantage of favorable tax policies.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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