Dollar Soft as Sentiments Remain Firm

Dollar remains broadly soft with the dollar index continuing to press 76 level. Talks on the Eurozone debt crisis continued as Institute of International Finance warned that private sector involvement in Greece's second bailout would cause "severe contagion" effects and there are "limits" to voluntary participation. It's believed that the IIF is proposing a loss of at most 40% on Greek but EU finance ministers head Juncker is pushing for a haircut of 50-60% in Greece second bailout. Meanwhile, the it's reported that German parliament will hold a full vote tomorrow on the proposals to leverage the EFSF. Without passing the vote, Merkel cannot agree to changes to the EFSF. There are still much uncertainties in the situation, at least before another EU summit on Wednesday.

Overall sentiments, though, were supported by more talk of QE3. New York Fed Dudley, also a vice chairman of FOMC, said yesterday that Fed has clearly indicated the interest in supporting the mortgage markets and "could potentially do more in that direction." That's seen as a sign of support, or at least being open, to the idea of buying more mortgage backed securities And more explicitly, Dudley explained that "It's possible we can do another round of quantitative easing."

Meanwhile, the US government announced a mortgage plan to boost the housing market. According to the Federal Housing Finance Agency, the Home Affordable Refinance Program (HARP), introduced in 2009 with the aim of providing lowers interest rates for homeowners, will now accept application from borrower whose mortgages were higher than 125% of the property values. Moreover, refinancing fees are waived so as to facilitate mortgage refinancing. Indeed, the policy will only offer modest help to the housing market. While 1M people are expected to benefit from the program in the coming 2 years, they constitute less than 10% of the total number of borrowers.

New Zealand dollar's rally lost momentum after slower than expected inflation data. Q3 CPI rose 0.4% qoq, 4.6% yoy versus consensus of 0.7% qoq, 4.9% yoy and 1.0% qoq, 5.3% yoy in Q2. The data reinforced the case for RBNZ to stay on hold for some more time. Australia leading indicator dropped -0.1% in August. German Gfk consumer sentiment improved to 5.3 in November. Swiss UBS consumer indicator also rose to 0.84 in September. Other data to be watched included Canadian retail sales, US house price indices and consumer confidence.

Also, BoC rate decision will be a main focus today. Both we and the market anticipate the BOC to hold its policy rate at 1% in October for the 13th consecutive month. The jump in headline inflation in September has probably prevented the central bank to lower interest rates but it would definitely not trigger a rate hike. We expect the central bank will deliver a statement that warns of downside risks in domestic and global economic outlook. More in Both BoC and RBNZ Will Stay on the Sideline.

While NZD/USD's rebound from 0.7466 extended to as high as 0.8108 earlier this week, it faced some resistance from the near term falling channel and retreats. Though, the overall development is favoring that correction from 0.8842 is finished with three waves down to 0.7466. Hence, while some consolidations might be seen below 0.8108 in near term, we'll stay cautiously bullish in NZD/USD as long as 0.7860 minor support holds and expect another rally. Above 0.8108 should extend the current rise from 0.7466 towards 0.8572 resistance next.

Please see the attached chart below.