More of the same in the Asian session with an early sell-off in US bonds helping the USD to higher levels. But with no follow-through action, currency pairs consolidated and edged marginally higher on slight profit-taking in the second half of the session. USDJPY managed a fresh cycle high of 84.16.
On the data front, most releases were second-tier but there was some disappointing Chinese Foreign Direct Investment numbers for February with inflows tumbling 0.9% from a year earlier to just $7.73 bln. This marked the fourth straight month of declines as overseas businesses become more cautious about investing in China as a result of the slowing global economy, tight labour markets in China and the associated rising costs.
While on China, we heard words from China’s Commerce Ministry which opined that February’s trade deficit could be temporary and assured that China would post a trade surplus for this year, although of a small magnitude than before.
China’s banking regulator has reportedly increased the target loan-to-deposit ratio for 2 major state banks, according to local press citing unnamed sources, in an effort to spur more lending after 2 straight months of disappointing loans growth. The China Banking Regulatory Commission (CBRC) uses target ratio adjustments as a tool to implement the so-called CARPALS dynamic risk management system adopted in 2010. Given that the top 4 banks hold more than 50% of total deposits in the banking system, small adjustments can have a significant impact on overall lending.
US yields continued their march higher Wednesday in the non-Asian session, extending the post-FOMC gains as the Fed’s QE3 prospects move further into the distance and this was the major influence in currency direction. USDJPY pushed higher and EURUSD edged closer to the 1.30 mark. UK unemployment showed a mild deterioration on a monthly basis but as expected on in the 3-months to January window. GBP was partially affected by Fitch placing the UK’s rating on negative watch, though the currency did see some demand from alleged M&A activity. Norges Bank surprised the market with a 25bp rate cut citing the stronger NOK as a burden to employment. NOK weakened across the board as a result. Emerging and commodity currencies were weak as gold reversed Asian gains.
Data tended to take a back seat yesterday as yields took precedence in determining direction. US import prices were a touch softer than expected (+0.4% m/m and +5.5% y/y versus 0.6%/5.8% respectively) and the current account balance veered deeper into deficit in Q4, recording a $124.1 bln deficit from -$107.6 bln in Q3. Wall St was mixed with the DJIA gaining 0.12%, the Nasdaq +0.03% though the S&P fell 0.12%. Asian bourses started off in the black but could not hold on to gains.
Data Highlights
US Feb. Import Price Index out at +0.4% m/m, +5.5% y/y vs. 0.6%/5.8% expected and revised flat/6.9% prior resp.
US Q4 Current Acct. Balance out at -$124.1 bln vs. -$115.0 bln expected and revised -$107.6 bln prior
Norway Norges Bank cuts Deposit Rates by 25bp to 1.5%
NZ Feb. ANZ Job Advertisements out at +5.3% m/m vs. revised -1.8% expected
NZ Feb. Business PMI out at 57.7 vs. revised 50.8 prior
AU Mar. Consumer Inflation Expectation out at 2.7% vs. 2.5% prior
NZ Mar. ANZ Consumer Confidence out at -2.7% m/m vs. revised -2.4% prior
AU Feb. New Vehicle Sales out at flat m/m, +1.7% y/y vs. revised 1.2%/2.5% prior resp.
China Feb. Actual FDI out at -0.9% y/y vs. +14.6% expected and -0.3% prior
SI Q4 Final Unemployment Rate out at 2.0%, unchanged from prior
Upcoming Economic Calendar Highlights (All Times GMT)
SI Retail Sales (0500)
Swiss SECO March Economic Forecasts (0645)
Sweden Unemployment (0830)
Swiss SNB Rate Announcement (0830)
EU ECB’s Liikanen to speak (0900)
Norway Trade Balance (0900)
EU Euro-zone Q4 Employment (1000)
UK BOE’s Broadbent to speak (1130)
US Empire Manufacturing (1230)
US PPI (1230)
US Initial Jobless Claims (1230)
US Net Long-term TIC Flows (1300)
US Bloomberg Consumer Comfort Index (1345)
US Philadelphia Fed Index (1400)
Andrew Robinson,
SAXO BANK