FX Daily Planet: Sydney/Asia Open

FX Daily Planet: Sydney/Asia Open

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View for the day

Risk market appear to be enjoying the dearth of economic data in the US session, as equities make an impressive late afternoon bounce, increasing about 0.3% on the day at time of writing. USD and JPY have weakened across the board against that backdrop, with NOK, and CHF leading the way higher. NZD is today’s main underperformer following dovish commentary from the RBNZ. In the statement following the decision to keep rates on hold, Bollard stated he expects the RBNZ to begin raising rates in Q3 as before, but also downgraded their assessment of the economy. Given the less robust economic releases since the RBNZ last released a policy statement in January, it was not surprising that their assessment of the economy was less bullish this time around. However, the central bank is keeping with its key wording that it anticipates the removal of monetary stimulus from around the middle of 2010. In addition, the RBNZ did not explicitly signal out the NZD in its monetary policy review like it did in January. In January, the central bank noted that "the New Zealand dollar has limited the scope for exports to contribute to the recovery." Taken together, the changes in today’s statement are a negative for NZD and should help AUD/NZD to continue to push higher. Separately, GBP has rebounded some along with the general trend higher in equities, but continues to under-perform following negative economic data in the European session and M&A speculation. In this case the Financial Times and Wall Street Journal are reporting that Barclays Bank has its sights set on acquiring a US retail bank. In addition, following on from yesterday’s poor trade data, UK industrial production was weaker than expected, adding to pressure on that currency. We continue to hold GBP shorts against EUR and CAD in cash.

Tomorrow features a large suite of data from China in the Asian session, including PPI, CPI, retail sales, and fixed asset investment. Were looking for retail sales, fixed asset investment, and industrial production to continue to reflect solid expansion in China, growing at %oya rates near 20%. Also keep an eye out for central bank policy rate announcements in Korea and the Philippines.

Overnight news

NZD: RBNZ keeps key interest rate unchanged at 2.5% as expected; Bollard stated he expects the RBNZ to begin raising rates in Q3, and downgraded the growth assessment some. Importantly, the RBNZ did not explicitly signal out the NZD in its monetary policy review like it did in January. In January, the central bank noted that "the New Zealand dollar has limited the scope for exports to contribute to the recovery."

USD: Jan wholesale inventories increased 0.2 %m/m (Cons: 0.2); Feb Federal budget ($bn) was -220.9bn (JPM: -223.0, Cons: -202.0); Action 10-year note ($21bn)

GBP: FT and WSJ reports that Barclay’s is considering an acquisition of a US retail bank. UK industrial production is weaker than expected, falling 0.4% m/m and manufacturing falling 0.9% m/m.

SEK: Industrial production is stronger than expected, rising 1.6% m/m but previous months have been downwardly revised

NOK: Inflation data is broadly stronger than expected, with headline rising 3.0% whilst underlying is in line with expectations.

AUD: January housing loan commitments was much weaker than consensus at -7.9% m/m (cons. +2.0%). Meanwhile, WMI consumer confidence unexpectedly improved in March despite a 25bp hike by the RBA in the month.

Today’s watchlist (all times GMT; +11hrs for Sydney, +9hrs for Tokyo, -5hrs for New York)

JPY : 4QGDP final (%q/q, saar) @23 :50 (JPM : 4.1, Cons : 4.0)

AUD: Feb Employment (ch 000s, sa) @ 01:30 (JPM: 10, Cons: 15) @ 01:30; Feb Unemployment rate (%, sa) @ 01:30

CNY: @ 02:00 CPI (%oya) for Feb (JPM: 2.1, Cons: 2.5); PPI @ 02:00 (JPM: 4.8, Cons: 5.1) @ 02:00; Retail Sales (%oya, ytd) (JPM: 19.7, Cons: 18.7); IP (JPM: 22.8 ,Cons: 19.5) @ 02:00; Fixed asset investment (%oya, ytd) (JPM: 25.3, Cons: 27.0) @ 02:00

KRW: BoK rate announcement (JPM: 2.00, Cons: 2.00) @ 02:00

PHP: BSP rate announcement (JPM: 4.00: Cons: 2.00) @ 08:00

Overnight price action

FX: NZD is weaker following RBNZ statements. GBP continues to underperform.

FX vol: GBP vol pops higher has GBP comes under further pressure.

Commodities: Gold is down 1.5% and oils is up 0.4%

Bonds: Yields are up about 3-4bp in shorter maturities.

Equities: US equities are up 0.3%.

Technical View for the day

As the short term themes remain intact, we continue to focus on key near term levels for signs of a potential break from the recent range bias. With the levels still well-defined, a key focus remains on the commodity currencies given the proximity of these key levels, as well as the recent range bias for the European currencies. In that regard, the setup for USD/CAD remains at a critical point as the decline has staged a deeper test of the important 1.0235/1.0205 support area and medium term range lows. While we see room for a near term retracement, the bias for CAD remains bullish as the odds for a breakdown are growing particularly given the maturity of the overall consolidation phase. Similarly, both AUD/USD and NZD/USD face important tests at short term resistance levels which should define whether an extension of the recent trends can develop. For AUD/USD, the .9175 area remains key and while yesterday’s intraday push through this area raises the risk of an upside extension, confirmation is still lacking. Moreover, the .7085/.7155 levels for NZD/USD will define whether the short term retracement from last month’s low can extend for a deeper retracement of the decline from the January peak. Note that while the near term retracement in AUD/NZD continues to develop, the breakout phase remains intact and new highs are still expected. JPY was the main underperformer yesterday highlighted by the attempt to break through the key 90.65/70 area for USD/JPY. The short term risks argue for additional upside as this week’s lows have thus far held Friday’s breakout levels. Similarly, the action in the crosses stays constructive highlighted by yesterday’s break of the key 82.82 late-February high for AUD/JPY, as well as the push through the 88.45 area for CAD/JPY. While the near term setup suggests some choppy price action is due, the overall upside risks are growing.

ENDs

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