Germany opens to compromise on firewall
What happened overnight
– Germany reportedly supporting temporary expansion of firewall
– German Ifo surprises higher, at odds with PMI print
G10 and EM currencies are trading in tight ranges at the NY open. Despite the upside surprise in the Ifo survey, EURUSD is slightly lower on the day at 1.3236, also showing no benefit from expectations of an expanded EU rescue firewall, following the announcement that Germany will allow for the EFSF to run in parallel with the ESM. AUDUSD is unchanged at 1.0475. USDJPY interrupted its recent correction and moved higher to 82.78, largely mirroring the move in US yields, also trading higher overnight. Asian currencies weakened broadly, with USDKRW higher at 1141, USDTWD at 29.60 and USDINR a touch higher at 51.30. In contrast, the PBoC fixed USDCNY lower for the third consecutive day to a new low of 6.2858 and USDMYR traded lower to 3.071.
Ahead of the Eurogroup meeting later this week, Germany is reportedly ready to allow a temporary increase in the overall euro zone bailout fund. European finance ministers meet in Copenhagen on Friday to discuss the expansion of the institutional European firewall. Rather than endorsing a permanent expansion, Germany now reportedly supports allowing the EFSF to run in parallel with the ESM. This option would temporarily expand the rescue system’s firepower to €940bn until mid-2013, when the EFSF is set to expire. This option would not be subject to national parliamentary ratification. Peripheral European bonds are rallying on the announcement.
The FT reported that Ireland is expected to set a date in May or early June for its referendum on the euro zone fiscal compact. Elsewhere, Spain’s governing centre-right Popular party failed on Sunday to win control of the important southern region of Andalusia from the Socialists in a regional election.
German Ifo expectations increased in March to 102.7 from 102.4, slightly above consensus for 102.6. The current assessment was stable at 117.4, above the consensus forecast for 117.0. The Ifo release provides some relief after the weak PMI last week and our economist notes that the Ifo survey has in the past proved more stable than the PMI. This suggests growth in Germany is still improving, albeit perhaps at a slower pace. Nevertheless the largest gain in the survey came from retail, while manufacturing decreased a touch. This in our view limits to what extent the CE3 and Scandies can benefit from the release. Meanwhile with the periphery still struggling, the ECB is likely to stay dovish.
Bank of Japan Governor Shirakawa warned of the risk of keeping interest rates low for too long. He said, “If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth potential of the economy by making resource allocation inefficient.”
New Zealand’s trade balance was back in surplus of $161 mn in February, following a revised deficit of $159mn in January. Exports fell 6.9%yoy to $3.59bn from revised $3.73bn while imports dropped 6.6%yoy to $3.43bn from revised $3.89bn in February.
Click here to read the full report: Americas FX Daily
Credit Suisse
FIXED INCOME RESEARCH & ANALYTICS