Dollar Up, Oil Down
The US dollar is back on the front foot, with declines in the major equity indices and oil prices weighing most conspicuously on the commodity currencies such as AUD and NZD. Apart from lingering concerns about slower growth in China, the Saudi Arabian Oil Minister’s assertion that output could be boosted immediately to address any shortages helped to bring crude prices down. While longer-dated UST yields softened, the 2-year part of the curve still looks heavy, helping to underpin USDJPY, which managed to move back within striking distance of the 84 level. Fed Chairman Bernanke – who merely cautioned against moving too quickly to reverse the policies that are helping the economy – added nothing new to the equation. We certainly remain in the ‘no QE3’ camp in the US, reflecting in part our sense that housing activity is picking up. The 1.1% m/m decline in overall US housing starts to 698k in February was basically as expected, and the prior month was revised up to 706k from 699k. More importantly, from a forwardlooking perspective, single-family permits increased 4.9% m/m to 472k annualised units – the highest level since April 2010. With the housing market index standing at its highest level since May 2007, the trend in housing remains positive. Those seeking further evidence will be looking ahead to the February existing home sales data later today. UBS forecasts a further 1.0% m/m rise, after the 2.3%m/m advance in the three months ending December and the 4.3% m/m gain in January. Another pair to watch is GBPUSD, which has eased off its overnight highs. The higher than expected 3.4% y/y February CPI print does not alter our call for further moderation ahead. The UK focus is now on the Bank of England’s MPC meeting minutes and the Budget Speech. We do not expect to see much in the way of GBP-positive developments, as the general tone of the minutes should remain dovish (with both the rate/QE policy decisions secured unanimously) and the Budget likely to be a macro non-event (with the OBR having no compelling reasons to alter its economic forecasts). Also on tap today will be Swiss M3 and more comments from Bernanke.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank