- No FX follow-through from Friday’s payrolls report – yet
With most European centres closed on Monday, the follow-through in currency markets from Friday’s weaker payrolls report has been limited. US stocks ended the day down, and Treasuries have held Friday’s post-payrolls bid, with 10yr and 30yr bond yields -2bp and -3bp respectively; 2s are unchanged on the day. Thus far after the payrolls report, FX markets have reacted more in keeping with equity softness/risk aversion than in response to the signal from the Treasury market that more monetary accommodation is now more likely. Fed Presidents Fisher, Lockhart and Kocherlakota are all due to speak during the New York afternoon today and should have something to say on the macro picture. If Fed speak today and indeed throughout the week alters expectations for QE3, risk should find support. But given that any such asset price support would be driven by further USD liquidity, a rebound in risk will be negative USD.
- BoJ unmoved by political pressure – but watch press conference for hints of action later in the month
The BoJ declined to offer any additional easing measures at the conclusion of its two-day policy meeting this morning – and interestingly, after proposing an additional Y5tr of asset purchases last month, Board Member Miyao declined to do so this time around. Most observers had not expected any action today, seeing the April 27 meeting, which will come on the heels of the April 25 FOMC, as the more likely timing for further easing. Our Japan economists concur, but maintain that any such easing is likely to be contingent either on additional easing from the Fed and/or a reversal of recent Yen weakness. Nonetheless, were Governor Shirakawa at his 7.15GMT press conference to hint at further balance sheet expansion, then based on the historical relationship between the scale of the BoJ’s balance sheet and the JPY (see chart) the currency is likely to retrace some of its recent appreciation. Absent such a hint though, USDJPY and JPY crosses are likely to be subject to fresh downward pressure, USDJPY in particular having not yet fully reflected the recent fallback in US Treasury yields. We do not expect the MoF to welcome such a move – and expect a break of the 81 level to trigger renewed expressions of concern from FinMin Azumi.
- China trade data positive – remaining data this week key for commodity currencies
Given yesterday’s acceleration in Chinese CPI inflation for March, any weaker Chinese data would be expected to have a greater impact, on the view that China does not have completely free reign to pull policy levers aggressively to force growth higher. But fortunately today’s Chinese trade balance made a spectacular recovery in March, printing a USD 5.35bn surplus against expectations for a 3.15bn deficit. While one swallow does not a summer make, the improvement should ease concerns – overdone in our estimation – of a Chinese hard landing. Further confirmation of the relative health of the Chinese economy may be forthcoming from the rest of the data over the balance of the week, and clearly this would be supportive of the global growth outlook. AUD and NZD have found some support today on the stronger trade numbers, although the enthusiasm was limited by perception of weakness in the breakdown of commodity imports. Still, if expectations of Fed action build, and if any such action from the Fed is likely to be followed – or even pre-empted – by the BoJ, then the additional liquidity should translate into more solid long-term support for commodities and the commodity currencies. In the meantime the AUDNZD cross is closing in on our 1.2500 target.
BNP Paribas