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Aussie Rises to 3-Week High as Record China Exports Spur Surplus

The Australian dollar rose to the highest level in three weeks after record exports to China generated an unexpected trade surplus and business confidence improved.

BNP Paribas SA recommended bets that the Aussie will strengthen against its New Zealand peer as one of the top 10 trades for 2014 after the Reserve Bank of Australia signaled at a meeting this week that borrowing costs will remain steady for some time. Australia’s bonds declined before the RBA releases its quarterly statement on policy tomorrow with updated inflation and growth forecasts. New Zealand markets are closed for a holiday.

“The Aussie is a little better bid” following the trade-surplus data, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The Aussie has been in the process of bottoming. We do see the test of 91 cents in the next one to three months.”

The Australian dollar gained 0.6 percent to 89.67 U.S. cents as of 5:44 p.m. in Sydney from yesterday, after touching 89.81, the highest since Jan. 14. It gained 0.3 percent to NZ$1.0878, after touching NZ$1.0948 on Feb. 4, the strongest since Dec. 12. The Aussie climbed 0.7 percent to 91.03 yen.

Australia’s 10-year bond yield rose seven basis points, or 0.07 percentage point, to 4.09 percent. The three-year rate added five basis points to 2.95 percent, after earlier reaching 2.97 percent, the highest since Jan. 23.

New Zealand’s dollar added 0.4 percent to 82.44 U.S. cents. It strengthened 0.4 percent to 83.69 yen.

Higher Yields

In Australia, exports exceeded imports by A$468 million ($420 million) in December, compared to a revised A$83 million trade surplus in the previous month, the Bureau of Statistics said today. That compared with a A$200 million deficit expected by economists in a Bloomberg News survey.

Australia’s two-way trade with China for 2013 was a record A$141.8 billion with exports to its largest trading partner coming in at A$94.5 billion as iron shipment volumes continue at a record pace.

“China is Australia’s biggest trading partner for its iron ore and coal exports and the two countries are intertwined with each other,” said Nagayuki Yamagishi, senior analyst at Money Square Japan Inc. “The increase in exports to China is very positive for the economy and symbolizes the pick up in Chinese growth. That eases recent concerns over emerging markets and can support the recovery in global growth.”

National Australia Bank Ltd.’s business confidence index rose to 8 in the fourth quarter from 5 in the three months through September. Retail sales increased 0.5 percent in December from the previous month, in line with the median forecast, and have climbed every month since April.

BNP expects the Aussie to rise to NZ$1.1250 by mid-year, the highest since Nov. 22.

Long Exposure

“We now believe that the cross has troughed and the risk reward favors entering long exposure,” to the Aussie versus the kiwi, BNP Paribas currency strategists including Steven Saywell wrote in a note yesterday. “A bullish catalyst for AUD has been lacking until the surprise shift from the RBA this week. The central bank’s signal that its policy easing cycle has likely ended means markets will very likely now start to price in rate hikes in Australia.”

The Reserve Bank of New Zealand, which refrained from raising rates last month, next meets on March 13.

“Given the extreme amount of tightening priced in, there is likely to be further disappointment ahead even as the RBNZ begins its rate hike cycle,” BNP wrote.

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