- Lower, housing starts, building permits and import prices decline, stocks and commodity prices rally
- Lower, BOJ ease speculation, report Japan may tap FX reserves to support government spending
- Higher, EU ministers agree on the Greek aid plan, German economic sentiment beat forecast
- Higher, house prices rise, election polls suggest Conservatives will win a small majority in parliament
- AUD & CAD higher, RBA rate hikes to be gradual, strong Canadian mfg. shipments
Overview
The USD started out higher in overseas trade supported by report that over 100 US members of Congress want China to be named as a currency manipulator. The USD traded lower in the US trading session pressured by report that the EU ministers have a plan to aid Greece if needed and in reaction to report of better than expected German economic sentiment and UK election polls which suggest the Conservatives will win a small parliamentary majority. Commodity currencies edged higher supported by firmer equity market trade and a rally in commodity prices. AUD gains were partly limited by the release of March RBA policy minutes which read a bit dovish. CAD was supported by a statement from Canada's Finance Minister Flaherty that the CAD was competitive at parity with the USD and in reaction to report of strong Canadian manufacturing shipments and productivity. JPY traded lower pressured by BOJ ease speculation and a Nikkei report which says that the Japanese government may tap FX reserves to boost spending plans. Japan's Finance Minister Kan denied the Nikkei report Nikkei report but JPY remains on the defensive. US economic data was mixed with housing starts and building permits coming in lower but close to expectations. Import prices dropped by less than expected. The trade awaits today's FOMC policy statement. The FOMC is expected to reaffirm its commitment to low yields for an extended period. Investors will be monitoring whether there is any change in the FOMC policy language and the Feds assessment of the strength of the US recovery.
Today's US data:
February housing starts declined by 5.9% to 575k, a reading of 580k was expected. February building permits declined by 1.6% to 612k, a reading of 610k was expected. Q4 import prices declined by 0.3%, a reading of -0.4% was expected.
Upcoming US data:
On March 17th February PPI will be released expected at -0.2% compared to 1.4% last month. On March 18th February CPI will be released expected at 0.1% compared to 0.2% last month. Q4 current account, initial jobless claims for week ending 03/13, leading indicators for February and March Philly Fed will also be released on March 18th. The current account is expected at -120bln compared to -108bln last quarter. Initial claims are expected at 457k compared to 462k last week. Leading indicators are expected to rise by 0.2% compared to 0.3% last month. Philly Fed is expected at 18 compared to 17.6 last month.
JPY
JPY traded lower pressured by BOJ ease speculation and a Nikkei report which suggests that Japan may tap its FX reserves to fund government spending programs. The BOJ will complete a two-day policy meeting Wednesday. The BOJ has been under significant pressure from the Japanese government to take additional action to combat deflation and weaken the JPY. The BOJ policy decision is close call with BOJ members divided over whether additional easing is justified in light of the recent uptick in Japanese economic activity. Market consensus is the BOJ will likely elect to expand its funding auctions but stop short of announcing a plan to buy Japanese government bonds. Japan's Finance Minister Kan denied the Nikkei report and said that Japan has no plans to use its FX reserves to boost government spending. Ratings agencies have warned that if Japan continues to expand spending the Japanese sovereign debt rating may be downgraded. Tapping FX reserves to boost spending could result in Japan's sovereign debt rating being cut and would also make it more difficult for Japan to intervene to try to weaken the JPY. Focus turns to the BOJ policy meeting on March 16th and 17th.
This week's Japanese economic calendar includes the March 17th release of January tertiary activity expected at 0.4% compared to -0.9% last month. On March 18th January revised leading indicators will be released expected at 2.5% compared to 3.8% in the original report. On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.
Key technical levels to watch in USD/JPY include support at 89.99 the March 16th low with resistance at 91.30 the February 23rd high.
EUR
EUR traded higher supported by report that the EU ministers have agreed on a plan to aid Greece if necessary and in reaction to higher than expected EU inflation and better than expected German economic sentiment. EU ministers gave few details of the plan to aid Greece but indicated that there would be no loan guarantees and that no further aid was required at this time. According to a Bloomberg report the EU ministers agreed to pool government funds to extend direct loans if needed for Greece but did not specify which countries would offer loans, how long the loans would be and what they would cost. European equities rallied after the news of the Greek aid plan and this sparked support for the EUR. EU February inflation rose by 0.3% and the German March ZEW economic sentiment fell less than expected reported at 44.5, a reading of 43.7 was expected. The slightly better than expected reading on the German ZEW index is unlikely to change the outlook for steady ECB policy. EUR consolidated early gains after the release of US housing starts and building permits as these reports came in close to market expectation. EUR traded to the day's highs in reaction to report that S&P affirmed its Greek debt rating. The trade awaits this afternoon's Fed policy announcement.
On March 17th EU Q4 labor costs and wages will be released expected at 3.3% and 3% respectively. On March 18th EU January current account will be released expected at 9.1bln compared to 9.4mln last month. EU January foreign trade will also be released on March 18th expected at 3.8bln compared to 4.4bln last month.
The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3620 the March 11th low with resistance at 1.3796 the March12th high.
GBP
GBP traded higher supported by report of rising UK house prices and the latest UK election polls which suggest that the Conservatives may gain a small majority in parliament. UK January house prices rose by 6.2%. The rise in UK house prices may dampen speculation that the BOE will be forced to expand quantitative ease. The UK is expected to hold a general election on May 6th. The election is seen as key the outlook for the UK budget deficit and the governments AAA sovereign debt rating. Recent UK election polls have suggested that the election would end in no party gaining a significant majority in parliament. The lack of a parliamentary majority would likely limit the scope of UK budget deficit reform. An election poll in today's Daily Express suggests that the Conservatives may win a 40 seat majority in the UK general election. The Conservatives have stated that they plan to take action to reduce the UK deficit. If the Conservatives do gain a strong majority in parliament it could reduce fears about the UK sovereign debt rating. GBP has been underperforming because of concern about the UK economy and election uncertainty. Focus turns to Wednesday's release of the BOE policy minutes for the March policy meeting. The trade will be looking at the minutes for clues to whether the BOE is considering a change in its asset purchases and expand quantitative ease.
This week's UK economic calendar includes the March 17th release of January unemployment weekly earnings and the February claimant count. Unemployment is expected at 7.9% compared to 7.8% last month with the average earnings unchanged at 0.8% and claimant count at 27k compared 23.5k last month. BOE policy minutes will be released on Wednesday. On March 18th February money supply and public-sector borrowing will be released. Money supply is expected at 0.8% compared 0.6% last month. Net public-sector borrowing is expected at -13bln compared to -11.7bln last month. Also on March 18th March CBI orders will be released expected at -34 compared to -36 last month.
The technical outlook for GBP is mixed as GBP holds above 1.5000. Expect near-term support at 1.4947 the March 11th low with resistance at 1.5218 the March 15th high.
CAD
CAD traded near a two year high versus the USD supported by improving risk sentiment as equity markets and commodities post a modest rebound and in reaction to a statement from Canada's Finance Minister Flaherty. Flaherty said that CAD at parity to the USD is competitive. His comments reduce the risk of intervention from the BOC to try and limit CAD gains. CAD was also supported by report of better than expected Canadian manufacturing shipments and productivity. Canada's January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follow last weeks report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week's decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. The trade will be closely monitoring today's FOMC policy statement for clues as to whether the Fed will leave interest rates at record lows throughout most of the year. Today's slight improvement in risk sentiment appears to be related to the announcement that the EU ministers have agreed to a plan to aid Greece if needed. CAD is expected to test parity to the USD in the weeks ahead. This week's main focus is the CPI report due for release Friday.
On March 17th January wholesale trade will be released expected at 0.4% compared to 0.7% last month. On March 18th January net foreign investment will be released expected at 8bln compared to 11.2bln last month. On March 19th January retail sales will be released expected at 0.7% compared 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.
The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0130 the July 25th low with resistance at 1.0334 the March 5th high.
AUD
AUD traded higher supported by a slight improvement in risk sentiment as equity markets and commodities rally in reaction to report that the EU has agreed to a plan to aid Greece if needed. AUD rally was limited by the release of the RBA minutes for the March policy meeting. The RBA minutes suggest that the pace of future RBA rate hikes will be gradual. The RBA minutes were seen by some as slightly dovish and contribute to uncertainty about whether the RBA will hike rates at the April policy meeting. Diminished speculation of aggressive rate hikes from the RBA may limit demand for the AUD. Last week, Australia reported weaker than expected employment growth. Thursday Australia reported that February unemployment rose by just 400 with unemployment unchanged at 5.3%. The weaker Australian employment growth may dampen RBA rate hike speculation. The RBA paused in its rate hike cycle during February. At the beginning of the month the RBA hiked interest rates 25bps to 4%. In the statement accompanying the RBA rate hike the RBA appeared to have a balanced outlook towards inflation, growth and future policy decisions. This has sparked speculation that the RBA may pause its rate hike cycle in April. The outlook for RBA policy will be key to the direction of the AUD. Focus turns to this afternoon's FOMC policy statement and conclusion of the BOJ policy meeting Wednesday.
This week's Australian economic calendar includes the March 17th release of Q4 dwelling unit starts expected at 7% compared to 9.4% last quarter.
The technical outlook for the AUD is positive as the AUD trades above 9100. Expect AUD support at 9056 the March 9th low with resistance at 9260.
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