CBA FX Strategy - NY Open
Thoughts from our Strategy Team
The advanced reading of Eurozone GDP revealed that growth eased a little to just 0.1% QoQ in QIII. Germany and Spain expanded by 0.3% QoQ and 0.1% QoQ respectively, but Italy and France both contracted by 0.1% QoQ. Clearly the Eurozone recovery is still very fragile. Annual growth remains negative at -0.4% YoY. An expenditure breakdown of the numbers is not yet available, but will likely reveal that net exports drove the expansion. The EUR has edged a little lower following the release to a low of 1.3418 so far this morning. In the UK retail sales also disappointed falling by 0.7% MoM in October. GBP/USD took a hit dipping temporarily under 1.60.
USD is likely to remain heavy today. Janet Yellen’s opening statement for today’s confirmation hearing to be the next Fed chair was released early in the Asian session. Her opening statement was dovish (“a labour market and economy performing far short of their potential”), pushed the USD down, although the USD index has recovered through the Asian and European sessions. The confirmation hearing is held this morning. Her comments suggest a tapering of the FOMC’s asset purchases is unlikely to start in December. Fed Chairman Ben Bernanke spoke in a “town hall meeting of teachers”, including Q&A today, but did not make specific comments on monetary policy.
USD/JPY was soft in the Asian morning, in line with lower US Treasury yields yesterday and the release of Yellen’s opening statement in the Asian morning. However, the pair has ground up through the morning to 100 as the USD has generally strengthened. Japanese Q3 GDP was slightly stronger than expected at 0.5% (consensus: 0.4%, CBA: 0.3%). But the details show almost all the GDP growth reflected rising inventories as private consumption ground to a halt and exports eased.
EUR/USD has eased lower through the European morning following the dip in Eurozone GDP growth to just 0.1% QoQ in QIII. Earlier in the session EUR/USD briefly slumped after the ECB’s chief economist Praet raised the possibility of a negative deposit rate and purchasing assets from banks to lift lending. The prospect of the ECB buying assets was raised earlier this year and is consistent with the ECB’s stance that all tools will be considered to support the fragile economic recovery. Praet also said the ECB’s disagreement on rates was on the timing of rate cuts. During an interview with Bloomberg during the Asian session, Praet reiterated his comments from yesterday, particularly that negative rates are part of the ECB tool box.
NZD/USD has recovered from its dip following yesterday’s RBNZ Financial Stability report, and has been buoyant during Asian trade, spiking briefly above 0.8350 during the session. However it has since eased lower as the USD has generally strengthened The Yellen comments in the Asian morning weighed on the USD and more than offset the NZD impact of a weaker than expected Q3 NZ retail trade survey. NZ retail sales rose by 0.3% (QoQ) in Q3, compared to consensus expectations centred on a 0.9% (QoQ) rise. Over the remainder of the week, NZD/USD moves will remain contingent on the USD side of the equation, and in particular comments from Yellen. Based on our USD view, we think NZD/USD should remain firm.
AUD/USD was buoyed in the Asian morning by the dovish Yellen commentary, which dampened the USD, but has since eased lower back under 0.93. Comments from Vice-Chair Yellen will be the major AUD/USD focus and driver over the coming US session. Further dovish rhetoric from Yellen would keep the AUD supported against the USD. A rebound in the USD and more rhetoric about the high Australian dollar from RBA Board member Ridout pushed AUD lower at the end of the Asia session.
AUD/NZD has eased steadily from 1.1586 in late October. We think the cross rate will find support above 1.1200 in the near term (as it has done on all three occasions in the past 4 months). At this stage, we continue to think it is too early for AUD/NZD to retest the year’s low of 1.1200. The Australia-New Zealand two-year swap spread is tracking at around -57bpts (actually widening today, despite the poor NZ data). The early October lows in AUD/NZD coincided with an Australia-New Zealand two-year swap spread equal to -67bpts. The spread can widen to this level again, and AUD/NZD will eventually dip below 1.1200, but we think that is likely a story for next year when the RBNZ’s rate tightening cycle is much closer, or RBA rate cut expectations get re-priced.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – Initial jobless claims (today); Industrial Production (Friday); Yellen speaks (today).
AUD – RBA minutes (Tuesday), RBA Stevens speech (21 November).
EUR – IFO survey (22 November).
Thoughts from our Trading Team
Support 1.3420, 1.3405, 1.3380
Resistance 1.3450-55, 1.3495-1.3510, 1.3560
A dovish Yellen is now in the price with the majority of short and med term shorts taken out overnight. I have entered a short with a stop 1.3510. Market this am drifts back through 1.3450-55 pivot. I expect further choppy price action over the coming days with continuing dovish rhetoric from Eurozone officials. Through 1.3420 and we are on our way to 1.3325-50.
The AUD has followed the G10 complex lower across the board throughout the European
morning, inflicting maximum pain on an already battered and bruised market. Having been short ccy’s and being stopped overnight in NYC, many bank players came in to buy (what they thought was at the time) the dip which has only resulted in a slow grind lower in the AUD and the G10 complex. At the time of writing we are glued to the lows and in sight of the important 0.9260 / 65 low seen earlier in the week. I would expect further corporate interest to be seen
between here (0.9290) and there, with a raft of stops placed below. Offers will now be camped from 0.9330 upwards for those trying to escape today’s price action traps.
Ground higher throughout the London morning taking out the 100.00 level posting a 100.045 high. We’ve backed off slightly with Asian names seen selling and looking to buy on a dip back to 99.50. Yellen is the main focus along with jobless claims.
Sterling was again data dependent, going 1.6000 offered on poor retail sales numbers and on to a low of 1.5988. People used the move to enter into Eur/Gbp shorts and we now find the cross back at 0.8390.
A move higher overnight on Yellen’s comments saw a vast majority of players stop out of the their short NZD position as a large fund type name paid the street in large clips. We have since traded lower, in line with the g10 complex and are gravitating around the 0.8250 strike which is reported for today.
ZAR USDZAR probing lower overnight as the Yellen comments washed over illiquid markets. Low print of 10.2540 sets a nice future support target, as buyers have been busy all morning. 10.3800 should provide some resistance ahead of the start of the confirmation hearings. Looks like the move back up in ZAR fuelled by reports that South African transport workers are now on strike. Vehicle transport workers move vehicles by road to and from ports and dealerships across the country, Once again the local operations of BMW, VW, MERC and Toyota will be hit into the year end.
AUD & NZD Today
Busy session overnight for AUD and NZD screaming as high as 0.9388 and 0.8358 on the weaker US dollar across the board post the Yellen remarks before reversing back to starting levels near 0.9300 and 0.8240 as NY walk in this morning on a combination of weaker data in Japan & Europe, comments of possible further “intervention” in Japan and profit taking …. So here we go again going into 10am and the Yellen testimony. Order-wise in AUD this morning we watch some Exporter interest into 0.9280 before the buyers really starts to thin out, we expect the 100 day ma at 0.9268 to support the downside as well unless any Yellen comment sees the US dollar take off …. plenty of supply will be seen above 0.9360 should we move back higher … a softer NZ Q3 Retail Sales number (+0.3% v +0.9% exp) was lost in the post-Yellen moves overnight with the Kiwi dollar spiking to session highs above 0.8350 with the last 30/40 point moves being stops on shorts … large 0.8250 strikes for tomorrow still are around so without any Yellen induced move it looks like a 0.8200 (200 day m.a 0.8176) to 0.8280 range will hold us as options desks trade around the strikes.