CBA FX Strategy
9 May, 2014
New York Open
USD was broadly firmer into European session with USD index lifted to above last week’s highs.
EUR/USD appears struggling to hold on to its 30 and 50-day moving averages after declining post ECB.
RBA Statement of Monetary Policy suggests RBA in no hurry to commence monetary policy normalisation.
NZD/USD shows little reaction to RBNZ comments that LVR restrictions won’t be removed at least until Q4.
USD/CAD could soften further if today’s Canadian employment report beats expectations.
USD was broadly firmer into European session with USD index lifted to above last week’s highs. There is no major data in the US today. The hawkish FOMC vote Richard Fisher speaks today (12:00pm), but given his well-known bias we aren’t expecting any significant market impact. With no other catalyst, we aren’t expecting any further substantive moves in the USD into week’s end. Over the medium-term, we continue to think the USD will be weighed down by relatively lower US real interest rates and the US’ $380 billion current account deficit.
EUR/USD appears struggling to hold on to its 50-day moving average of 1.3826 following the sharp selloff after yesterday’s ECB decision and press conference. ECB Governing Council member Liikanen will give an alumni interview at the University of Helsinki today (8:40am) and is unlikely make comments of any significance. We think EUR/USD could exhibit some further modest downside in the short-term. The risk is Eurozone exporters delay buying EUR on anticipation the EUR declines further following the potential easing in policy at the ECB’s June meeting, leading to further EUR downside. However, as we see support for EUR/USD mainly from the Eurozone’s strong current account surplus (2.3% GDP), we don’t expect EUR/USD will decline below the 200 day moving average of 1.3619 and don’t believe further ECB easing will change the upward trend of EUR/USD.
GBP was soft against a firmer USD but stayed firm against the weaker EUR (see above). GBP/USD dipped further in European trading despite narrower March UK trade deficit and better than expected industrial production data. In particular, manufacturing production grew by 0.5% in March, compared with consensus of 0.3%. Irrespective, today’s UK data is unlikely to challenge the market pricing for the first BoE rate hike in Q4 2014. Looking ahead, the more important GBP focal point is next Wednesday with the release of the UK labour market data and the BoE’s quarterly Inflation Report. We expect a further decline in the UK unemployment rate and an upbeat BoE Inflation Report. Both should be GBP supportive. The ongoing divergence between the ECB and BoE and increasingly negative German-UK two-year swap spread (which is now at its most negative since October 2008) should continue to dampen EUR/GBP. GBP/AUD looks set to remain bound within its 30-day (1.8015) and 100-day (1.8328) moving averages.
AUD/USD has been little changed today, following yesterday’s gains. As anticipated, weaker than expected Chinese headline inflation and signs that the RBA is not in a hurry to commence monetary policy normalisation saw the AUD soften modestly. The RBA lifted its near term GDP growth forecast, but made minor downward revisions further out. Inflation is expected to remain contained over the forecast horizon, with the RBA stating that, “a degree of spare capacity will be present for much of the forecast period”. Chinese CPI and PPI data for April was released at the same time as the RBA SoMP. Whilst headline CPI was softer than expected at 1.8%YoY (2.1%YoY exp), the core measure which strips out volatile food prices was sharply unchanged at 1.6%. The only comment of note on the wires from RBA Assistant Governor Guy Debelle today was that hiccups are likely during China’s financial deregulation. We expect the AUD to track sideways, with support around the 30 day moving average (0.9317).
NZD/USD remained heavy through Asian trade, and had very little reaction to RBNZ Deputy Governor Grant Spencer’s speech on the NZ housing market early in the session. Spencer mentioned the impact of the RBNZ’s LVR restrictions, which it estimates have reduced house price growth by 2.5%pts. Spencer said the RBNZ does not expect to remove LVR restrictions until late this year at the earliest, given it wants, “to be confident that the housing market is responding to interest rate increases; and that immigration pressures are not causing a resurgence of house price pressures.”
USD/CAD consolidated around 4-month lows through the Asian session. Canadian economic data has been surprising on the upside, supporting CAD. USD/CAD could weaken further tonight if Canadian employment data (8:30am) shows a continuation of stronger than expected jobs growth. Expectations are for a small 15k lift in employment, with the unemployment rate expected to remain stable at 6.9%. We see slight upside risks to the employment number, which could see USD/CAD remain heavy.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – Fed speakers: Yellen, Plosser, Tarullo (Today), Fisher (Friday).
AUD – housing finance, Q1 house prices, Australian Government Budget (Tuesday 13 May). RBA speakers: Ellis (Tuesday 13 May), Ellis (Thursday 15 May).
GBP – Employment, Bank of England Inflation Report (Wednesday 14 May). BoE speakers: Kohn (Monday 12 May), Carney (Tuesday 20 May).
EUR – ZEW Survey (Tuesday), Industrial production (Wednesday), ECB Monthly report, CPI, Q1 GDP (Thursday). ECB Speakers: Liikanen (today), Costa (Saturday), Lautenschlaeger, Weidmann (Tuesday).
NZD – RBNZ Financial Stability Report (14 May).
CNH – Fixed Assets Investment, Retail sales, Industrial production (Tuesday 13 May).
CAD – Labour force (today). BoC speakers: Schembri (Thursday 15 May).
AUD & NZD Today
Another overnight session where 30-40 point ranges held AUD and NZD comfortably allowing the usual Exporter/Corp business to be done on the edges of the ranges seen … we are expecting more of the same to close out the week with AUD this morning sitting between Exporter interest that remains layered in the 0.9310/40 range while Intraday accounts will continue to be sellers on any move into the 0.9380/0.9410 region …. For NZD the buyers sit this morning 10 points either side of 0.86c while 0.8660/90 will draw out the sellers. Overnight RBNZ Spencer commented that the earliest date for LVR lending limits removal would be late 2014 while the RBA in their qtly Statement on M.P. had some slight revisions in their forecasts with both these events having no real effect on currencies. NZ qtly Retail Sales data the key event next week for Aust/NZ domestic data.