AUD Finds A Foothold
The Australian dollar managed to steady itself overnight after Tuesday’s scare about China’s appetite for iron ore, but the currency could not fully recover lost ground. Tuesday’s comments from an Australian miner appeared to provide anecdotal evidence of a Chinese slowdown and we can expect AUD to show extreme sensitivity to any further remarks of this nature. China is after all Australia’s largest export market, and iron ore Australia’s single-biggest export. Any doubts raised about both factors simultaneously risk triggering a double-dose of downside each time. Crucially though, we doubt any selloff will last long unless miners react by shelving mine development and expansion plans in anticipation of weaker commodity prices. This has not yet occurred although we are watching carefully. Elsewhere, the US Treasury market was largely unmoved, while Asian equities drifted lower. Oil inched higher again – slowly recovering after the Saudi Arabian oil minister’s assertion that output could be boosted immediately to address any shortages helped to bring crude prices down. Fed Chairman Bernanke spoke yesterday and is due to do so again today. He cautioned against moving too quickly to reverse the policies that are helping the economy, but mostly 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. 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 ended 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.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank