USD gains on retail sales; Kiwi hits the skids on RBNZ

Normal 0 false false false EN-AU X-NONE X-NONE MicrosoftInternetExplorer4

In keeping with the recenttheme of strength, the greenback reacted positively to outperforming U.S datawith a solid retail sales print providing a notable bounce across the board.U.S Retail Sales jumped 1.1 percent in February, outpacing expectations of 0.5percent growth.

U.S dollar strength afterstronger than expected data suggests markets continue to looking the data pulsein the context of Fed stimulus expectations. In short, the stronger the economy,the greater the chance of the Federal Reserve scaling back asset purchasessooner than anticipated. This theme was particularly noticeable in the ensuingperiod of Friday non-farm payrolls which saw the greenback forge gains acrossthe board.

As noted in Monday’s CurrencyFocus:

On the assumption the U.Sdollar retains its ability to rally in times of market turmoil and strengthenon outperforming (top-tier) data, we see conditions broadly in its favour.There is however a case to suggest markets may have suitably priced-in chancesof an early than expected scaling back of asset purchases, which will no doubtbe tested in the week ahead with a few key releases on the docket. In turn, itwould be wise to expect more moderate appreciation from the greenback shoulddata continue to point to stronger economic conditions, especially in light ofthe uncertainty surrounding the sequestration.

Euro

The Euro took two pronouncedsteps lower over the sessions with price action falling to 3-month lows of1.2922 before consolidating slightly higher in the later part of U.S trade.Once again the theme of negative contagion has taken hold in the Euro-region,and investors remain hesitant to bid the Euro higher in any sort of size. Trueto form, markets are looking to the European Central Bank for solace, andexpectations the bank will take further steps to ease policy should continue tokeep the Euro on the back foot.

Italian debt yields roseovernight following a debt auction which was met with weaker than expected demandwhile a mix of U.S dollar strength and rates-driven weakness forced the Eurodeep into the 1.29 handle.

Kiwi

The Kiwi hit the skids thismorning after the RBNZ policy decision. While keeping rates on hold at 2.5percent, the NZD carved out 2 ½ month lows following the statement which flagthe implications to growth in the region from the high exchange rate anddrought conditions in north. Although we believe the banks tightening bias willremain, its apparent growth headwinds may see any increase in the cash ratepushed further into the future and markets have responding accordingly bypunishing the Kiwi.

Australian dollar

The RBNZ decision appears tohave provided residual weakness for the Aussie dollar, which has retreated backbelow 103-figure after the decision.  Overall, we’ve seen the local unittrade in a reasonably tight range with a downside bias given broad-based U.Sdollar strength; however traders will now look to local jobs data to define thenext move. The Australian labour force is expected to have grown by 10,000 inFebruary with the official unemployment rate likely to have edged higher from5.4 to 5.5 percent.

At the time ofwriting the Australian dollar is buying 102.9 US cents. /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}