CBA FX Morning Commentary
Thoughts from our Strategy Team
UK inflation fell more than expected in October hitting GBP. GBP/USD dipped to 1.5854, EUR/GBP has spiked up to 0.8440. The headline measure of CPI inflation dropped to 2.2% YoY from 2.7% YoY. Core CPI inflation dropped to 1.7% YoY, a low since late 2009. Both goods and services price inflation tumbled, to 1.7% YoY and 2.7% YoY respectively. The BoE publishes new inflation forecasts tomorrow, ones which should be relatively unchanged further out the forecast profile. But plainly there is no urgency to remove current policy accommodation. Market attention will instead focus on the ILO unemployment rate projections which are expected to reveal the ILO rate dipping to the 7.0% level somewhat earlier than previously – current projections suggest this level will be reached only by late 2016. A late 2015/early-2016 projection looks more likely this time around. GDP growth projections will also likely be nudged higher. Elsewhere there has been little to report through the morning.
USD increased in a relatively quiet day of trading in Asia and has held steady through the European morning. Most relevant for the USD this week is Janet Yellen’s appearance at the Senate Banking Committee on Friday for her nomination to become the next Fed Chair. We see a risk Yellen is not as dovish as some market participants perceive, and hence we see some modest upside risks to the USD.
AUD/USD continues to ease gradually and this trend is likely to continue today with little data or events scheduled. The pair has reached 0.9312 so far this morning. The Chinese Communist Party’s Third Plenum Central Committee concludes today. Key economic reforms may be announced at the meeting today, such as fast-tracking liberalisation of the CNY (time of any announcement is unknown). It is also possible China’s GDP target will be cut to 7.5% to 7.0%, adding to AUD’s downside today.
NZD/USD faces the RBNZ’s Financial Stability Report (FSR), including a RBNZ press conference (3pm EST/8pm GMT). Although the FSR focuses on financial stability, rather than monetary policy, we should receive an update of the effectiveness of the RBNZ’s macro prudential measures. The risk is the effectiveness of the macro-prudential measures spelt out in the FSR generate a slight dip in New Zealand yields and hence NZD/USD. But a large leg down in NZD/USD is not likely because the RBNZ is still intending to begin lifting interest rates in 2014.
EUR has been mildly supported over the early part of this week on media reports highlighting an apparent split among the ECB. The reports suggest up to 6 members of the 23 person ECB Governing Council were not in favour of the surprise 25bp November rate cut. Looking back at last week’s decision and ECB press conference, this information should not be viewed as new. In the November post-meeting Q&A session, ECB President Draghi noted that the ECB was “wholly in agreement about the need to act. But there were differences about when to act”. According to Draghi, “a significant majority” thought there was enough evidence of low inflation to act in November, while “other members” wanted more information and reserved their views until next month. The ECB’s Asmussen speaks later today. After the ECB decision last week, Asmussen stressed that he did not question the ECB’s need to act to ensure price stability. This is likely to be Asmussen’s message today, if policy is discussed. As we noted yesterday, we do not expect this to be the start of a significant reversal higher in EUR/USD. The diverging monetary policy outlook between the ECB and Fed, negative German-US yield differential and fragile Eurozone recovery should continue to act as a EUR/USD headwind.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – Initial Jobless Claims (Thursday); Industrial Production (Friday); Bernanke speaks (Thursday); Yellen speaks (Friday).
AUD – The Chinese Communist Party’s Third Plenum Central Committee (today).
EUR – Eurozone Q3 GDP (Thursday).
GBP – BoE’s Inflation Report (Wednesday).
JPY – Q3 GDP (Thursday).
Thoughts from our Trading Team
Support 1.3340, 1.3310
Good Morning, Another tight European morning range, from the grind higher yesterday we drifted lower this am from 1.3390s to 1.3360 as dovish rhetoric hits the tapes. European Central Bank Executive Board member Joerg Asmussen tells Germany’s Neue Osnabruecker Zeitung that “depending on how inflation develops, we haven’t yet reached the end of our options with regard to the interest rate. No follow through and relax back to 1.3390’s
Very little to add today. The pair has worked extremely hard in the 20 / 30 region all day with large amounts going through, however we have not made head way in either direction. We have just done some stops sub 0.9320 at the time of writing, but we rebound 0.9325 bid straight away. I think we will be 0.9300 / 50 for the reminding of the European session.
We took our lead from Asia with the London market taking the headline pair through barriers at 99.75 and unto a high of 99.80. Good exporter offers are seen all the way up which will take some time to get through. Whilst above 99.10 it will be a buy on dip with immediate support seen at 99.45.
Sterling has been the main mover of note today on the back of UK CPI. Even before the number was released sterling was well offered against both the USD and the Euro. As many expected, given the pre-positioning in sterling, CPI came out weaker than expected. However it is worth noting that just prior to the number we saw a CB and a real money fund buying Gbp/usd and a HF selling Eur/Gbp. Stops have been triggered in eur/gbp through 0.8425 and next resistance is seen at 0.8445 whilst cable support is noted at 1.5900.
NZD has continued a slow descent, assisted by the USD strength rather than off its own back, during a week which offers little local data… I’ve been caught in two minds this morning whether we can re-test the overnight .8206 low, and more importantly follow on through to take a look at the major support at .8178 where the 200 DMA lies, or whether it takes the dull choice of gravitating back into the .8250/8275 zone where the Option interest lies… with the continued bullishness of USD/JPY, it should continue to trade on the weak side as it has done so far in the London morning… CS a standout seller in the lows in the .8210’s the only notable flows we have seen thus far.
AUD/NZD, you guessed it, still incredibly thick and stuck in the mid 1.13’s…
USD/ZAR ascendancy continues, 10.5096 is the high this year, you have to go back to Mar 2009 ( 10.7270) and Oct 2008 ( 11.8710) to find more data. This isn't a move to try and fade, wait for the turn and hang on. Resistance lies below now at 10.1760
AUD & NZD Today
A decent fall in Aust October business confidence overnight (to +5 from +12, conditions remain lacklustre at -4) as the post-election take back from this previous jump in Sept was the catalyst for AUD to continue its post-NFP softness … the move saw fresh Exporter interest filled below 0.9340 with AUD gradually grinding to current session lows as NY walk …. This morning down to 0.9280 continues to hold further solid Exporter and Real Money interest as AUD looks to be headed to test the 100 day ma near 0.9270 where we would expect first up strong support …. Look for any move above 0.9360 to find plenty of selling interest emerge from Macro, Aust Corp and Option related accounts. NZD also weaker overnight ignoring a strong showing for Oct domestic property prices rising to a record fresh high and also looks set to test key support eyed ahead of the 200 day ma into the 0.8180 area, only some sporadic buying interest in the 0.8190/0.8210 region holds the pairing from testing this level … we expect any moves above 0.8250 to find plenty of selling interest on the day. Aust Nov Consumer Confidence & Q3 Wage Cost Index out tonight.