There is no trade call for thesession. Last week saw downside in the USD without any fundamentalcatalyst, and upside in AUD and GBP.  Today’s session is light andprovides opportunity to analyse potential market moves for the week. As alwayson Mondays, prepare for the upcoming week by reading my currency updatebelow. 

Currency Update:

USD: Headline NFP for February beatestimates at 242k vs 190k expected; the solid beat was undermined by a miss onAverage Hourly Earnings which declined -0.1%. vs a rise of 0.2%. The USDremains the strongest currency fundamentally. Core PCE for January ticked up to1.7% y/y which is reassuring for the Fed’s tightening policy. We may see somehawkish comments from Fed members in relation to the recent move higher inunderlying inflation. The second reading of Q4 GDP beat estimates at 1.0% above0.4% expected. CPI for January beat estimates with Core CPI y/y ticking up to2.2% and rising 0.3% for the month. Headline CPI was at 1.4% y/y. Minutes fromthe January meeting struck a cautious tone, noting increased uncertaintyregarding inflation and potential financial risks. NFP for Jan saw 151,000 jobsadded, versus expectations for 190,000. The unemployment rate fell to 4.9%.Average hourly earnings jumped 0.5% for the month, however the y/y figure heldsteady at 2.5%. 

EUR: Eurozone Flash CPI for Februarymissed estimates at -0.2% versus expectations of flat for the headline; 0.8%versus expectations of 0.9% for the ex-food & energy; and 0.7% versus expectationsof 0.9% for the core (ex food/energy/alcohol/tobacco). This increases chancesthat the ECB will make a substantial move in monetary policy at the Marchmeeting. At the January 21 ECB meeting, Draghi made dovish comments, sayingthat monetary policy will be reviewed at the March meeting due to furtherdeterioration in inflation expectations and other financial uncertainty. 

GBP: UK GDP second estimate for Q42015, came inline with expectations for both the q/q at 0.5% and the y/y at1.9%. London Mayor Boris Johnson’s announcement to campaign for leaving the EUhas put extra bearish sentiment on sterling. Average Earnings were at 1.9% forDecember, while the jobless rate moved up to 5.1%. Core CPI for January missedestimates and dipped back to 1.2%. The Bank of England vote split changed backto 9-0 with McCafferty no longer voting for a hike. Growth forecasts for 2016and 2017 were downgraded while inflation is expected to remain below 1% til theend of the year. The referendum regarding Britain’s exit from the EUcontributes to bearish sentiment on the currency due to political uncertainty.

AUD: Q4 GDP was much better thanexpected at 0.6% q/q vs 0.4% expected, and 3.0% y/y vs 2.5% expected. Thispositive reading brings into doubt the chances of any RBA cuts during2016. The March 1 RBA statement was largely a reiteration of the priorstatement; low inflation would provide room for easing; reasonable prospectsfor growth in the economy and low rates are supporting demand; will make adecision on whether market turmoil portends weaker demand. Q4 PrivateCapex beat estimates however forward-looking estimates for 2016/17 dramaticallymissed prior estimates, which caused weakness in the Aussie. 7,900 jobs werelost in January while the Unemployment Rate ticked up to 6%. CPI for the fourthquarter beat expectations overall with Trimmed Mean y/y remaining at 2.1%,which is within the Banks’s target of 2-3%. The Australian dollar remains aneutral currency which will be guided by direction in key commodity assets.

NZD: RBNZ Inflation Expectations forQ4 2015 came in at a 22-year low at 1.6%which puts pressure on the Bank to easefurther. The RBNZ kept rates on hold in January but struck a dovish tone sayingthat the NZD needs to move lower and further easing is a possibility. Westpacforecast a cut to 2.25% at the March meeting. CPI for Q4 was poor showingdeflation of -0.5% for the 3-month period and a rise of only 0.1% throughoutall of 2015. This increases chances of further RBNZ cuts. On February 3, the QuarterlyEmployment Change printed at 0.9% versus the 0.8% consensus, while theUnemployment Rate tumbled to 5.3% smashing expectations of a 0.1% rise to 6.1%,and the lowest since the first quarter of 2009.

CAD: Canada’s economy expanded at anannualised rate of 0.8% in Q4, beating estimates; GDP for 2015 was at1.2%. January employment declined 5,700 – its second decrease in the lastthree months, and missing consensus of a 6,000 gain. The jobless rate ticked upto 7.2%, on par with its highest mark since March 2013. The severe depreciationof the CAD due to falls in oil means there is less urgency to cut rates, as thelower CAD will boost inflation by making CAD-denominated goods more attractiveto overseas buyers. 

JPY: BOJ core CPI dropped to 1.1% y/yfor January. GDP for Q4 2015 missed estimates at -0.4%. The Bank of Japanannounced negative interest rates of -0.10% on January 29 but left the QQEprogram unchanged. The inflation target was pushed back to end 2017 and theBank remains prepared to ease further if necessary. The BOJ are watching CPIexcluding food & energy to gauge underlying inflation trend. 

CHF: Q4 GDP beat estimates at 0.4%.The franc is fundamentally a weak currency given the SNB’s negative interestrates, however it can suddenly rally on safe-haven flows. The SNB regularlyrecite that the franc is overvalued and they are prepared to intervene toweaken the currency. The franc’s direction is difficult to predict due toregular intervention by the SNB.

At no time should anyone view the information presented anywhere on this website as advice, recommendation or proven. Everything reflected is merely opinion and may not be accurate. The purpose of the site is to express the opinions and views of Jarratt Davis. There is no intention to offer specific help, advice or suggestions to anyone reading any of the content posted here.

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