News and views
The USD sell-off, inspired by Wednesday’s US Fed’s treasuries purchase plan, ran out of steam in NY, risky currencies all slightly off their Europeansession highs. US equities were even less convinced, and fell for the second consecutive day since the Fed announcement. The S&P500 closed 2% lower, banks falling almost 7% as the AIG-bailout furore is expected by the market to pressure politicians to allow future bank failures to run their course. Further gauges of risk aversion mounting in the short term were VIX higher to 46, 10 year US treasuries weakening by 3bp to 2.63%, and gold down 0.8% to $952. Commodities were generally unchanged. The Swedish finance minister said on CNBC he wouldn’t rule out quantitative easing, and while the ECB’s Weber didn’t go quite that far, he did say longer-term loans to flatten the yield curve were possible.
NZD closed a touch higher than the domestic session’s 0.5575, but looked tired after hitting a 2-month high of 0.5625. Friday’s immigration and credit card data were overshadowed by the residual effect of Wednesday’s FOMC decision.
The AUD closed NY at the same level as the domestic session close, 0.6870. It did reach 0.6930 during Europe, but followed the EUR’s weaker tone back down. AUD/NZD continued to confound the punters by attacking 1.23, an old support level, but failing to sustain a 1.2270 low.
EUR couldn’t surpass the previous day’s 1.3740, with 1.3725 being its best effort before sliding back to finish the week at 1.3580. USD/JPY gained over a yen to close at 96.
No US data.
German producer prices fell 0.5% in February, leaving them up 0.9% on a year ago. The annual rate of growth is likely to briefly turn negative through the middle of the year, highlighting the growing degree of slack in the European economy.
Eurozone industrial production fell by 3.5% in January, as signalled by the ugly country-level data published earlier (Germany in particular, down 7.5%). Production is down 17.3% on a year ago, the sharpest rate of decline since records began in 1986.
Canada retail sales rose by 1.9% in January, following three consecutive declines that culminated with December’s near-record 5.2% drop. Vehicle sales picked up as expected, but ex-auto sales were also stronger than market forecasts, with strength in apparel and personal care.
Outlook
Some NZD bullish sentiment is creeping into the market, which will make for choppy price action over the next few weeks. We hold on to our multimonth expectation that the NZD will fall below 0.49, but the multi-week outlook is unclear. Shorter term, having reached our 0.56 target on Friday night, and noting the toppish price action, we feel the next few days will see NZD lower, to at least 0.5450.
