AUD lower as risk off trade takes hold and commodity prices drop

Australian Dollar:

The Australian Dollar moved sharply lower yesterday amid shrinking demand for risk and a weaker NAB Business Confidence report. The National Australia Bank’s survey showed business conditions had deteriorated throughout February forcing a short term run on the Aussie before the currency found support just above 0.9010 and stabilised to trade within a 30 point range for the remainder of the Australasian session. However a drop in commodity prices and lingering concerns over the instability of the Chinese financial system continued to plague market confidence and support levels above 0.90 were broken during the North American session. The dollar opens noticeably weaker this morning at 0.8976 as the focus turns to Westpac’s consumer sentiment report and Thursday’s jobs data for further direction.

• We expect a range today of 0.8930 – 0.9050

New Zealand Dollar:

The New Zealand opens relatively unchanged this morning and resilient in the face of waning risk appetite. Rallying throughout Tuesday the Kiwi touched intraday highs above 0.85 as the currency tested resistance levels unchallenged since October last year. Despite a correction back within recent ranges the currency unit remains buoyed by speculation the Reserve Bank will raise the official Cash Rate to 2.75% when it meets tomorrow. All eyes are firmly focused on the Central Bank and we expect the NZD to remain within recent bounds until market expectations are fulfilled or dashed. The NZD opens this morning buying 0.8467 US cents.  

• We expect a range today of 0.8400 – 0.8500

Great British Pound:

Sterling edged lower against its US counterpart yesterday as Industrial Production numbers missed the mark. Despite stable Manufacturing Production and an upward revision in the NIESR GDP Estimate the 0.1% advance in Industrial Production since January was well below the markets anticipated 0.3% appreciation and served as a timely reminder that the British economic recovery is still fragile. Furthermore Bank of England Governor Market Carney continued to defend the board’s monetary policy stance, reiterating that current unemployment markers were still relevant but not the only factor in determining when rates would rise. Markets are tipping the BoE will be the first to raise interest rates (ahead of its US, European and Japanese counterparts) however the majority of analysts expect the current record low of 0.5% will be maintained at least until Quarter two 2015. Opening stronger against the AUD and relatively unchanged against the NZD Sterling is currently swapping hands at 1.8515 and 1.9615 respectively.

• We expect a range today of 1.8450 – 1.8550. 

Majors:

The Bank of Japan confirmed it will maintain its current monetary policy stance and pledged to expand the money supply and its pace of contribution to 70trillion Yen per annum. The announcement was widely expected and currency rallied strongly as demand for risk appetite diminished and investors petitioned safe haven assets amid concerns surrounding the stability of China’s financial system and political turmoil in the Ukraine. While the Greenback remained relatively stable the Euro fell against both the USD and JPY as ECB Vice President Vitor Constancio said markets had misinterpreted President Draghi’s comments last Thursday. Constancio confirmed the bank was still prepared to implement quantitative easing and asset purchases while considering negative deposits should economic conditions deteriorate and growth remain stagnant. Focus again turns to the Federal Reserve as analysts widely anticipate a further $10billion reduction in monthly bond purchases when they meet next week.   

Data releases

• AUD: Westpac Consumer Sentiment and Home Loans m/m
• NZD: No Data
• JPY: BSI Manufacturing Index, Tertiary Industry Activity m/m, CGPI y/y, Consumer Confidence and BoJ Monthly Report
• GBP: No Data
• EUR: French Final Non-Farm Payrolls q/q and Industrial Production
• USD: Crude Oil Inventories, 10Y Bond Auction, Federal Budget Balance and Treasury Secretary Lew Speaks.