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Fonterra confirms milk price forecast; positive momentum driving NZD higher; UK CPI to fall below 1%

Currencies
Fonterra confirms milk price forecast; positive momentum driving NZD higher; UK CPI to fall below 1%

By Kymberly Martin

NZ Dollar

The NZD has been the strongest performer over the past 24-hours. It has gained 1% against the USD, to trade around 0.7890 this morning.

The NZD was on the ascendancy from early yesterday morning. On one hand the release of the RBNZ’s Financial Stability Report was a bit of an anti-climax, as no changes to LVR restrictions were discussed, throwing cold water on recent speculation. However, the overall report and accompanying comments touched a slightly more hawkish tone than of late.

Dairy co-operative, Fonterra, then announced that its milk price forecast for the 2014/15 season was unchanged at NZ$5.30/kgMS, with a cash payout range of NZ$5.55-$5.65. This was a positive surprise, as all and sundry (including ourselves) had been talking downside risk (in our view downside risk remains).

In combination, these events were sufficient to build some steady positive momentum in the NZD. From 0.7800 yesterday morning it now sits close to intra-night highs, just below 0.7900.

The NZD is also stronger on all the crosses. Most notable was the surge in the NZD/GBP. From 0.4900 yesterday afternoon, the cross has been magnetically pulled back toward the 0.5000 level. It trades at 0.4990 currently.

The BNZ October PMI will be released this morning. There is little reason to believe it won’t remain firmly in expansion, following the 58.1 reading in September. NZ food prices (October) and the ANZ consumer confidence index for November are also due. Resistance for the NZD/USD is now eyed at 0.7930 while support is seen at 0.7800.

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Majors

In the backdrop of a fairly steady USD the NZD has been the strongest performer, and the GBP the weakest, over the past 24-hours.

The USD index and the EUR/USD have largely tracked sideways over the past 24-hours in the absence of vital data releases or news flow on either side of the Atlantic. Only Eurozone industrial production data for September was released, showing a 0.6%m/m gain (0.7% expected). The EUR/USD sits at 1.2440 currently.

The GBP/USD showed more response to UK data releases. It initially pushed a little higher after the release of UK labour market data. Average weekly earnings were shown rising 1% (3m av. y/y) (0.8% expected) even as the unemployment rate ticked up to 6.0% from 5.9% previously.

But the GBP/USD response was short-lived, as the it fell quite sharply after the release of the Bank of England’s inflation report. The report noted UK CPI is “more likely than not” to fall below 1% over the next 6 months. The GBP/USD fell from 1.5940 to 1.5800 currently. This is its lowest level since September 2013.

The AUD/USD has climbed along with the NZD overnight, sitting at 0.8730 this morning.

Today, RBA Assistant Governor Kent is scheduled to speak in Sydney. Crucial for the AUD will also be the release of China data early this evening. Most important of these for the AUD will be October industrial production (consensus 8.0%y/y), but retail sales and fixed asset data is also due.

Tonight, the final reading of German CPI will be released. It is likely to simply confirm deflation is the greatest risk to the Eurozone. Consensus expects a 0.8%y/y reading.

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Source: CoinDesk

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