Category: Daily Look

Aussie decline



The wind was taken out of the Aussie’s sails overnight with the release of weaker than expected CPI data.  This took 1 cent from AUDUSD which pushed a two week low below the 0.93 level.  Recall that it was not that long ago that the central bank was doing its best to talk down the currency, into the end of last year and when it was close to the 0.90 level.  This latest release removes the risk that the RBA may have become a little more uncomfortable with currency strength, but there are still issues to contend with, as the previous period of currency weakness continues to be felt via the rise in the rate of tradeable goods inflation, which a year ago was negative and is now running at 2.6%.

For today, the focus is initially on the European PMI data, which more recently have been indicating better prospects for the Eurozone economy compared to the end of last year.  The impact on the single currency is likely to be limited as the focus is on the risk of deflation.  The same is likely to hold true for the BoE minutes released at 08:30 GMT, given that the main focus for UK markets is likely to be with the release of the Inflation Report next month.  Thereafter, US data is second tier in the form of New Home Sales and preliminary manufacturing PMI at 13:45 GMT. Then overnight we have the rate decision from the New Zealand central bank, where the expectation is that we will see rates increased from 2.75% to 3.00%.  The kiwi has already been softening on the belief that the RBNZ will signal a pause in the tightening cycle, in part because of the deflationary effect of the firmer currency.

Overall, the US dollar remains consolidative and it likely to see the upside constrained so long as the Fed continues to suggest that a rate increase is off the agenda for some considerable time. This can be seen in the tight correlation between the dollar and interest rate futures contracts for mid-2015, which has moved from negative to positive over the past 5 weeks (4 week rolling correlation).

Further reading:

German Flash PMIs beat expectations, French miss

Conflicting reports of battles in Ukraine drive investors away from risk

Dissecting FX Themes

Dissecting FX Themes

There are three main themes for FX this week. Firstly, monetary policy remains in focus, given that we have the New Zealand central bank meeting to decide policy (rate rise expected), but also in light of the divergence we are seeing between those central banks seen tightening within the next year versus those that still

GBP/USD strongest since 2009, EUR/USD remains resilient

GBP/USD strongest since 2009, EUR/USD remains resilient

Sterling is on its front foot as the holiday shortened trading week draws to a close following better than expected UK employment statistics. Data released Wednesday showed that the unemployment rate in the UK bested the consensus forecast of 7.1%, declining to 6.9% in March; its lowest reading in almost 5-years. Previous to this data

Softening inflation before the Easter break

Softening inflation before the Easter break

Today sees the end of the working week ahead of the Easter break.  On reflection it’ll be a week remembered primarily for softening inflation, not only in the UK and the Eurozone but even across the pond in the US.  Yesterday the Federal Reserve Chairman Janet Yellen showed her dovish colours by mentioning that the

UK Unemployment Rate crosses the 7.0% Threshold

UK Unemployment Rate crosses the 7.0% Threshold

It’s a good thing Bank of England Mark Carney has changed his forward guidance to look at spare capacity as opposed to just unemployment as today should see the rate edge 0.1% lower to 7.1%, a stone’s throw from his original threshold of 7.0% that would have triggered the first interest rate hike in the

Sterling likes the CPI release

Sterling likes the CPI release

We’re already seeing sterling coming under pressure this morning ahead of today’s CPI figure which is due to come in at 1.6% Year-on-Year, a decline from last month’s 1.7% and in line with the Bank of England’s forecast.  We should see the Month-on-Month number decline from 0.5% to 0.2% with transportation prices likely to be

The euro softened following Draghi’s talk

The euro softened following Draghi’s talk

Unsurprisingly Mario Draghi tried to talk down the euro over the week end when he was meeting with the IMF and World Bank giving yet further indication that he will act as and when required either if inflation remains low for too long or if the euro continues to appreciate.  The reaction from the single

Covering of dollar shorts could be seen towards the weekend

Covering of dollar shorts could be seen towards the weekend

This will be seen as the week that the dollar bulls were put back into their box. The dollar index is now 1% below the average seen so far this year and remember that this was the year when most were looking for the dollar to appreciate on the back of Fed tapering and the

Back to the start line

Back to the start line

The dollar has now completed a full reversal of the gains seen mid-March to early April, with the market’s interpretation of messages from the US Federal Reserve accounting for most of the climb higher and subsequent reversal. Recall that it was Yellen’s comments in the wake of the March meeting that caused the initial move

FOMC Meeting Minutes On Tap – Focus Shifts to Interest Rate Time-line:

FOMC Meeting Minutes On Tap – Focus Shifts to Interest Rate Time-line:

Equity markets staged a moderate rebound yesterday, managing to claw back some of the wash-out seen over the past few days, despite the USDJPY carry trade continuing to collapse with the pair sliding below the 102 handle. Employment data out of the US which showed job openings stood at 4.2M as of the last day in February helped underpin