- We continue to favour AUD into next week; JPY moving closer to the top of the Ichimoku cloud
AUD remained steady in response to RBA Govnenor Steven’s warning that forex intervention is an option if the AUD is considered too strong, commenting that the recent rise in AUD’s strength has been at a time when the commodity terms-oftrade effect has been waning. We view that intervention is unlikely, particularly as the RBA has plenty of scope to offset tightening monetary conditions via cutting rates. However, the tone from Stevens’ suggest that the RBA might be more likely to cut rates that the most recent RBA minutes would suggest, especially if the AUD remains strong in a scenario in which the data softens. A downgrade of three major Australian banks weighed on AUD this morning, but it remains one of our favoured currencies to hold as eurozone fiscal risks should continue to abate next week amid the ECB’s LTRO and the EU Summit. Meanwhile, USDJPY has regained its upward trend overnight and is approaching the top of the Ichimoku cloud at 80.94. We expect that USDJPY could loose its momentum on an approach to 81, but a break out of the cloud to the topside would be an indicator of a further rise in USDJPY. Elsewhere, the agenda is light for key data this morning, with French consumer confidence and UK GDP the main events. GBP appears oversold in response to this week MPC minutes, but today’s GDP release is unlikely to be the trigger that restores confidence in the currency.
- Draghi offering few clues in front of March 8 ECB meeting.
In a WSJ interview published on Thursday, ECB President Mario Draghi offered few clues as to what could transpire at the March 8 Council meeting. Draghi did say that that he saw no signs of inflationary tendencies at present, “quite the opposite in fact” but also noted that positive signs in the Eurozone economy had increased, “in the past two weeks”. Our economists continue to forecast an additional quarter point cut to the refi. rate at some point in coming months and March is still seen as a live meeting. Before then, next Tuesday’s LTRO becomes the key news focus (allocation announcement on Wednesday – we currently expect something in the EUR400-500bn range) and too the ratification of Monday night’s Greek bail out by the Dutch, German and Finnish parliaments. Assuming no hiccups here, we can see the EUR continuing to advance.
- Fed speakers can have USD impact
From the dollar side of the EURUSD equation, and the USD in general, Friday sees a Monetary Policy Forum in New York that will feature speeches from the Fed’s Plosser (arch hawk) Bullard (hard to characterise) and Dudley (arch dove). Treasury yields were already back under downward pressure Thursday and should comments out of the forum suggest that the market has been too quick to rush to judgment on the prospects for more QE as well as question the late 2014 low-rates commitment, this could well add to the downward pressure on USD. BoC Governor Carney also speaks at the same function. The latest BOC Review warned of the risk to household consumption from the rise in indebtedness in the past 10 years (much of it used to finance consumption) and in the event of a significant house price correction. Rising concerns about the housing market, poor data of late together with the fact that Canadian Western Select Crude has significantly lagged the run up in Brent Crude, are reasons to think that CAD underperformance versus its commodity currency peers (NOK especially) may persist for a while. Data of note Friday includes US new home sales (after weak existing home sales on Wednesday), final Michigan CSI, the February Eurocoin (leading indicator) and revised German and UK Q4 GDP.
- Are Reserve Managers coming back on the bid?
While dollar weakness and EUR gains may be largely attributed to short covering, we suggest that with Eurozone event risks from Greece fading it may not be long before Reserve Managers (and oil producers in particular given latest windfall gains from rising prices) are seen as more active on the bid under EURUSD. The IMF COFER data (see chart) suggests that reserve managers continued to add to euro holdings through Q3 but we suspect this process halted in Q4 and early Q1 when concerns about a Greek euro exit were at their peak.
BNP Paribas