Continued Dollar Fatigue
After its recent run higher, the US dollar is still suffering from what we see as merely a temporary show of fatigue entering the Asian session, where market conditions will be thinner than usual due to the Japanese holiday (Vernal Equinox Day). The softer US dollar profile looks all the more conspicuous in the light of the overnight rise in UST yields, suggesting fresh incentives will be needed for another push higher. Certainly, the US dollar did not receive much encouragement from the NAHB’s unchanged housing market index of 28 in March, which undercut the consensus estimate of 30. Moreover, the February index was revised down slightly to 28 from 29, though this is still well above last September’s 14 print. True to expected form, New York Fed President Dudley continued to sound dovish, warning of risks to growth from higher gasoline prices, fiscal cutbacks, and housing. Though he acknowledged that recent data have been more “upbeat”, he sees inflation as likely to moderate further and stated that “nothing has been decided” about further accommodation. EURUSD was squeezed above the 1.32 level, with the Greek CDS settlement (Greek bonds received a final value of 21.5%), the EFSF’s sale of 20-year bonds (raising EUR 1.5 bn), and confirmation that the ECB was putting its bond-buying programme back into hibernation all serving reminder of reduced Eurozone tail risk. The focus is now on the RBA minutes, Swiss industrial production, and the UK February CPI data. Regarding the latter, UBS expects a 0.2% m/m rise, but GBP bears will focus on the moderation in the y/y rate – our forecast is a below-consensus 3.0%. Also on tap will be US housing starts (UBS expects some slippage to 680k in February from 699k in January, and Fed Chairman Bernanke’s comments. QE should remain off the table.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank