- Norges Bank surprises with -50bp but NOK still fares better than AUD, NZD and CHF
Against the expectations of all but a couple of local houses, the Norges Bank surprised with an aggressive 50bp cut to its deposit rate Wednesday, citing higher funding costs and significant downward revisions to the economic outlook. Though the Norges Bank’s future rate track sees no further easing, we expect at least one more 25-point cut in this cycle. NOK shot lower on the news and largely maintained losses through the NY close. The surprise in looking at the day’s G10 FX scoreboard was that NOK was only the 4th weakest currency on the day, AUD the biggest loser (-1.1%) followed by NZD and CHF. This is in front of the keenly awaited SNB policy meeting outcome and latest (HSBC version) of the China manufacturing PMI (see below). Though EURUSD plumbed new lows for this move in the wake of an underwhelming 5yr BTP auction there was none of Tuesday’s fireworks. The (options-related) fall in EURGBP right at the NY open failed to find follow-through selling and though the second best performer on the day, it was a second-day running where the dollar scored gains against all other G10 counters.
- SNB in the hot seat, we look for them to maintain the 1.20 EURCHF floor
Though the SNB’s move to impose a 1.20 floor on EURCHF on September 6 came more than a week before their September 15th policy meeting, there is a strong presumption that if the floor is to be raised again it will happen at 8:30gmt today when the SNB makes its latest policy pronouncement. We continue not to expect them to do so since we don’t buy the argument that since the SNB has, since October, been able to maintain the peg while shedding rather than adding to reserves (see Chart), the same would be the case if the peg was fixed higher. This is especially so in an environment where eurozone stress remains high. The market goes into the SNB decision long EURCHF largely through options and while a knee-jerk sell off in both USDCHF and EURCHF is almost inevitable on SNB inaction, we suspect that there will be plenty of buyers on a 1.22 handle in the latter.
- China data key in Asia session
AUD underperformance in Wednesday’ session owed something to comments from RBA Deputy Governor Ric Battellino perceived as dovish (he suggested that the Australian economy could suffer significant indirect expire from Europe, and that the currency would fall in the event of a full blown crisis). The extent to which China is slowing is also still key, leaving AUD vulnerable on this morning’s HSBC version of the China manufacturing PMI. A significant drop from the 48.0 November reading leaves AUD susceptible to a drop clean through 0.99 after Wednesday’s clean break below parity. Given whispers of a very weak number, perhaps the equal/bigger risk is a relief rally driven by short term speculative accounts taking profits.
- Eurozone ‘flash’ PMIs due; heavy US calendar, including Philly Fed and TICS
PMI data also holds keen interest in Europe given we get the ‘flash’ Eurozone manufacturing, services and composite numbers for December. Further falls from November’s 47.3 (manufacturing) and 49.6 (services) reading are expected, to 47.0 and 49.0 respectively. Though EURUSD sold off on disappointment that the ECB was not more emphatic in last week’s policy easing, we would nevertheless expect the euro to suffer on numbers that validate the ECB’s contention that there are significant downside risks to their latest published forecast. The US calendar is very busy (see below) and we would highlight the Philly Fed survey as perhaps the most FX sensitive; there will also be interest to see whether the September bounce in net US capital inflows was repeated in October when the TICS data is published.
BNP Paribas
Corporate & Investment Banking