- USD: Mixed, house price rebound slows, consumer confidence rises more than expected, stocks turn lower
- JPY: Lower, industrial production and household spending declined , unemployment unchanged
- EUR: Lower, France AAA debt rating at risk of a downgrade, Greek bond spreads widen
- GBP: Higher, GDP revised up, house prices rise, trade gap narrows
- CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Canada’s raw material prices rise
Overview
The USD traded mixed Tuesday weakening against the GBP and commodity currencies and firming versus the EUR and JPY. GBP outperformed supported by report of an upward revision in UK Q4 GDP and higher UK house prices. EUR erased early overseas gains pressured by rumors that France may lose its AAA debt rating and in reaction to ongoing concerns about the Greek debt crisis as Greek bond spreads continued to widen. AUD was supported by RBA rate hike speculation and the JPY traded lower pressured by improving risk appetite and firmer equity market trade with additional selling pressure noted in cross trade to the GBP and AUD. CAD traded higher supported by report of an unexpected rise in Canada’s raw material prices. Risk appetite was supported by news from China about possible Yuan revaluation and US China tensions. Reuters reports of divisions in China over the Yuan value. Two PBOC advisors said that China should allow the Yuan to gradually appreciate but the Chinese trade minister said that the Yuan is not the cause of US China trade gap. US Chinese tensions may be easing in reaction to comments from President Obama that he wants to work with China to create balanced and sustained global growth. US economic data was mixed with the Case Shiller House Price Index unchanged last month. The rebound in house prices seen last fall has faded. Consumer confidence came in above expectations and USD edged higher rising to a fresh two month high versus the JPY. Focus turns to Wednesday’s release of the ADP employment report for March. Investors will be looking at the ADP for clues to Friday’s US unemployment report. March nfp is expected to post a gain of 200k.
Today’s US data:
January Case Shiller Home Price Index declined by 0.7%, a 0.8% decline was expected. March consumer confidence rose to 52.5, a reading of 49.5 was expected.
Upcoming US data:
On March 31st March ADP employment will be released expected at 20k compared to -20k last month. Also on March 31st March Chicago PMI and factory orders will be released. The Chicago PMI is expected at 61 compared to 62.6 last month and factory orders are expected to rise by 0.5% compared to a 1.7% rise last month. On April 1st initial claims for the week ending 3/27 will be released expected at 438k compared to 442k last week along with February construction spending, the March ISM index and March domestic auto sales. Construction spending is expected to fall by 1.1% compared to a 0.6% decline last month. The ISM index is expected unchanged at 56.5. On April 2nd the March unemployment rate and nonfarm payrolls will be released. Nonfarm payrolls are expected to rise by 200k compared to -36k last month and the unemployment rate is expected unchanged at 9.7%.
JPY
JPY traded lower pressured by improving risk sentiment, selling in cross trade and in reaction to mixed economic data. President Obama’s call for cooperation with China may help to ease US China trade tensions and contributed to an improvement in risk appetite. JPY traded lower in cross trade to the GBP with GBP supported by report of improving UK house prices and an upward revision in UK GDP.JPY traded lower in cross trade to the AUD with AUD supported by RBA rate hike speculation. EUR/JPY traded lower with EUR gains limited by rumors that France may face a credit rating downgrade and in reaction to ongoing concerns about the Greek debt situation as demand for Monday’s Greek bond auction was weak. Japan’s February unemployment rate was unchanged at 4.9%. Japan’s February industrial production declined by 0.9% and household spending dropped by 1.6%. These reports contrast with Monday’s release of strong Japanese February retail sales and paint a mixed picture for Japan’s economy. JPY traded to the days lows after the release of above expectation US consumer confidence. This week’s main focus will be the release of Japan’s tankan business sentiment Thursday survey and US March unemployment report Friday.
On March 31st February housing starts and construction orders will be released. Housing starts are expected to rise by 2% compared to 5.4% rise last month. Construction orders are expected at 9.1% compared to 15.7% last month. On April 1st March tankan survey will be released expected -16 compared to -24 last month with CAPEX spending expected -11.5% and -13.8% last quarter.
Key technical levels to watch in USD/JPY include support at 91.75 the March 25th low with resistance at 92.96 the March 25th high.
EUR
EUR traded lower erasing early overseas gains pressured by ongoing worries about the Greek fiscal outlook and rumors that France may see a downgrade of its credit rating. Monday, Greece auctioned a seven-year bond that was poorly received and Greek bond yields continued to widen. The poor reception for the Greek bond auction and widening of Greek bond spreads generates concern about the financing of Greek debt. EUR has been supported over the last couple trading sessions by last week’s announcement that the IMF and EU agreed to aid Greece if needed. EUR remains vulnerable to concern about sovereign debt risk in the EU with today’s focus on rumors that France may lose its AAA credit rating. Last week Portugal’s debt rating was downgraded and there is concern that the EU faces more sovereign debt risks with investors keeping a close eye on Ireland, Spain and Portugal. The Irish government announced today that it will take a bigger stake in the banking sector. EUR traded lower despite report of rising import prices in Germany. German February import prices rose by 1% a 0.4% rise was expected. If today’s report of higher import prices in Germany is the start of a trend towards higher EU inflation investors may begin to look for the ECB to shift to a more hawkish policy bias. Many analysts expect the ECB hold rate policy steady and delay rate hikes because of concern about the impact of sovereign debt risks on the EU recovery. EUR may see additional selling pressure as interest rate differential is moving in favor of the USD. Monday, three month USD Libor rate hit a six-month high in anticipation of an eventual Fed policy shift. In contrast EU Libor rates held at record low in anticipation of fresh liquidity add expected from the ECB Wednesday. This week’s release of US March unemployment report will be key to the outlook for the US recovery and interest rates.
On March 31st, German March unemployment will be released expected unchanged at 8.2% along with EU HICP for March expected at 1% compared to 0.9% last month. On April 1st EU March manufacturing PMI will be released expected 54.2.
The technical outlook for the EUR is negative as EUR trades below 1.3400. Expect EUR support at 1.3350 with resistance at 1.3537 the March 30th high.
GBP
GBP traded higher supported by report of an upward revision in UK GDP, firmer UK house prices and a narrowing of the UK current account gap. UK Q4 GDP was revised up 0.1% to 0.4% and February Nationwide Building Society house price index rose by 0.7%. These reports suggest that the UK recovery is gaining momentum. UK Chancellor Darling says that he expects to see a sustainable recovery in the UK. Darling went on to say that weaker GBP has helped to support the rebound in the UK economy. Q4 current account gap narrowed to 1.7bln from a revised 5.9bln in Q3 as exports rise. GBP was also supported by gains in cross to the EUR with EUR pressured by ongoing worries about the Greek debt outlook and fresh worries about a potential downgrade for France’s credit rating. Investors remain concerned about the UK debt outlook but in its pre-election budget announcement the UK forecast that the budget deficit will narrow in the years ahead and the latest UK election polls suggest that the Conservatives may gain a parliamentary majority. The Conservative party has pledged to take action to reduce the UK deficit. GDP direction will be linked to UK debt and election outlook.
On March 30th GFK consumer confidence will be released expected -13 compared to -14 last month. On April 1st March CIPS manufacturing PMI will be released expected at 56.8 compared to 56.6 last month.
The technical outlook for GBP is mixed as GBP traded above 1.5000. Expect near-term support at 1.5000 with resistance at 1.5329 the March 18th high.
CAD
CAD traded higher supported by rising commodity prices and by hope US China tensions are easing. Canada’s IPPI was flat last month and the RMPI rose by 0.4%. The IPPI was in line with expectations and the RMPI rose more than expected. A statement by President Obama that he wants to work with China to achieve stable and balanced growth generates hope that US and Chinese trade tensions may ease. US Chinese trade tensions are seen as a threat to the global recovery. CAD generally benefits from optimism about the global recovery. Equity markets are trading at an 18 month high adding to optimism about the global recovery. Crude prices traded above $82 a barrel and the price of copper was also firm. CAD price direction maintains a very close correlation to the price of crude. CAD traded higher last week supported by hawkish comments from BOC Governor Carney. Carney said that the Canadian recovery was faster than expected and he suggested that he was open to consideration of possible rate hike as early as June 1st. The BOC has pledged to maintain low yields through June of 2010 conditional on inflation remaining in check. Canada’s core inflation rate rose to its highest level in 16 months. Canada’s February CPI rose by 0.4%, a 0.3% rise was expected. The core inflation rate rose by 2.1%. The core inflation rate is above the BOC’s 2% inflation target. The above target CPI increases the risk of an earlier BOC rate hike. CAD has been outperforming supported by improving Canadian domestic economic outlook and speculation that rising Canadian inflation will encourage the BOC to make an earlier rate hike. Today’s report of an unexpected rise in Canada’s February raw material prices may increase pressure on the BOC to consider an earlier rate hike. CAD should remain well supported on breaks by speculation that the BOC will hike rates before the Fed. Focus turns to this week’s release of Canada’s GDP. The trade will be looking to the GDP for confirmation that the Canadian recovery is gaining momentum.
On March 31st January GDP will be released expected unchanged at 0.5%.
The technical outlook for CAD is positive as USD/CAD trades below 1.0100. Look for near-term support at 1.0062 the March 19th low with resistance at 1.0273 the March 29th high.
AUD
AUD traded higher supported by RBA rate hike speculation and speculation that China may allow the Yuan to gradually appreciate. RBA watcher McCrann said that it would be extraordinary if the RBA did not hike rates next week. McCrann’s comments follow yesterday’s statement by the RBA Governor Stevens that interest rates are too low and cannot remain at prior levels. His comments fuel speculation that the RBA will hike rates at the April RBA policy meeting. RBA’s Debelle said that rate policy will be tied to mortgage rates and home prices. Australian home prices have been rising. RBA assistant governor Lowe said last Thursday that interest rates will continue to rise towards normal and that waiting for improving global outlook to raise rates would be too late. The normal range for RBA rates is thought to be 4.25% to 4.75%. Australian financial markets are pricing a 70% chance that the RBA will hike rates 25 basis points to 4.25% next week .The RBA is expected to hike rates from the current 4% level to 5% by year-end. Next RBA policy meeting will be held on April 6th. AUD was also supported by Yuan revaluation speculation. PBOC advisor Bin says that China should let the Yuan gradually rise. Firmer Yuan could help to reduce global trade imbalance and improve Australian export demand. AUD gains were limited as US equities turned lower for the day and US bond yields rise in reaction to report of improving US consumer confidence.
This week’s Australian economic calendar includes the March 31st release of February building approvals expected at 3.5% compared to -7% last month along with February retail sales expected at 0.8% compared to 1.2% last month and February private sector credit expected unchanged at 0.4%. On April 1st February trade balance will be released expected at -1.63bln compared to -1.18bln last month.
The technical outlook for the AUD is positive as the AUD rallies above 9100. Expect AUD support at 9166 the March 30th low with resistance at 9253 the March 17th high.
