A risk-averse start to the week on Chinese data
JPY should continue to remain well supported, with the commodity currencies on the defensive following surprisingly weaker Chinese data over Q1. Weaker US Empire manufacturing data today and German ZEW tomorrow could contribute to mild risk aversion remaining which could weigh on NZD and SEK (most lopsided positions as per BNP Paribas FX positioning analysis-see chart). JPY could remain better supported in the lead up to Friday’s G20 meeting following the release of Friday’s US Treasury report (more below). The reaction of USD to housing data (NAHB index today, housing starts tomorrow) will be important. Through Q1, the USD was rallying in tandem with equity markets as investors viewed signs of green shoots, especially in the housing sector. Hence, any signs of cracks should impact USD. Our economists forecast a weaker reading on housing starts tomorrow. Given the risk-averse backdrop, softer housing data would likely see USD could slip further against lower beta currencies (EUR, JPY, CHF, GBP) in the days ahead. But over time, in a more pro-carry environment, we would expect USD weakness to come against the higher yielding commodity bloc.
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BNP Paribas