– AUD benefits from the strong Chinese trade prints; stay long
Risk sentiment has been lifted by the impressive set of China trade prints which revealed that both exports and imports grew significantly more than expected while trade surplus widened to USD31.62bn (against expectations of USD 20bn) in December from USD19.6bn prior. Exports surged by 14.1% YoY against expectations for a 5.0% rise following a 2.9% prior reading while imports rose 6.0% YoY against expectations for a 3.5% rise. The China custom’s spokesperson Zheng commented that exports shows signs of “warming up” in Q1. AUDUSD bounced by 50 pips post-release to 1.0550. China’s influence on Australia’s economy remains strong, evident from the paring of rate cuts priced in by the AUD OIS to 34% chance post-strong Chinese data from 40% yesterday. In addition, we think that the trend of stronger CNY fixing (USDCNY fix at 6.27930 today, below 6.2800 support) should lend support to a stronger AUD. Furthermore, AUDUSD has room to catch up with indicators such as the Hang Seng China Enterprises index after having lagged the rally seen in broader China sentiment since December. Today’s trade data supports the Chinese recovery story, while the spotlight shifts to the CPI data tomorrow and next week’s retail sales, FAI and industrial production data for further confirmation. We continue to favour long AUDUSD, targeting a move to 1.0850.
– ECB to hold steady, EURUSD to remain supported
EURUSD has been boosted by a positive outcome from Spain’s auction this morning but the pair is struggling break above 1.31. The ECB meeting will likely shape sentiment for the EUR, but we doubt that it will by itself trigger significant directional moves. Recent economic numbers have been mixed, with ‘hard data’ softer (German factory orders and industrial production) but the forward-looking survey data improving (eurozone economic sentiment and PMIs). We see no change in ECB rates at today’s meeting (70% probability), which is consistent with market expectations. The focus will thus be on press-conference where but we would not be surprised to hear that there continues to be a discussion of rate cuts. However, without a clear signal that the ECB was closer to pulling the trigger this month than in December, we believe negative impact on EURUSD should be limited, and our bias would be to use any dips to buy into the EURUSD. Indeed, BNP Paribas STEER indicates that EURUSD has been oversold (see chart below). From a technical perspective EURUSD support is around the July bullish daily trendline (1.2980) while resistance is near the December highs just above 1.33. Our end-Q1 forecast is for EURUSD to gain to 1.35.
– Soft Swedish data supports our long EURSEK recommendation
The outlook for the Swedish economy remains relatively soft following a 1.3% m/m decline in industrial production (consensus: -0.5%). Industrial orders also declined sharply by 5.2% m/m suggesting that weakness in industrial output may persist over the months ahead. We view that the weakness in the IP data outweighs the upside surprise to CPI, with CPIF rising to 1.0% y/y (last: 0.9%; consensus: 0.8%). The soft Swedish data supports our view for the SEK to weaken as the Riksbank maintains its dovish stance and the market continues to price in a likelihood of a further rate cut. This week we entered a long EURSEK recommendation targeting a move to 8.80. This would reflect an unwinding of the SEK’s strength since the Riksbank cut rates in mid-December. Norway’s CPI release was also slightly softer-than-expected this morning, but we do not expects this to alter our outlook for divergent monetary policy stances between the Norges Bank (who we expect to hike by end-Q3) and the Riksbank to lead to a further rally in NOKSEK in 2013. We expect the cross to rally to 1.23 by mid year.
BNP Paribas