Currency Updates:
AUD/USD Hourly resistance in the 0.7740/45 area stalled two short covering rallies that occurred in European and NY trading. NY’s lift barely made it to 0.7740 as broad based USD strength was the theme for the session. The pair got a bit more weight added to it a Terry McCrann article in the herald Sun http://bit.ly/1KLNKgi noted that the Fed will be a bigger factor in AUD/USD’s direction that the RBA. This had the pair sit neared the lower end of its 0.7706/40 range heading into the close. the Asian session has NAB’s Feb business conditions and confidence data as well as China’s Feb CPI 7 PPI readings. Soft results for both data sets could see AUD/USD break below the bear flag base and make a run at the 2015 low.
EUR/USD Europe pushed the pair slightly above 1.0900 just ahead of NY’s open on the back of ECB bond buying, yield spreads narrowing a bit and light short covering. NY applied bear pressure immediately though. Traders ignored the slide in US bond yields and instead focused on overall USD strength. Real money names were again noted sellers and EUR/USD slipped to a 1.0838 low for NY. Headlines relating to Greece were largely ignored by the market as were comments by ECB’s Weidmann that questioned the ECB’s bond buying on its initial day of purchases. Some of the USD’s gains eroded in the afternoon and EUR/USD lifted back towards 1.0860 late in the day. Upcoming Asian & European session might be limited in action as there is little major data to impact the pair. China’s inflation data later on might impact a bit but it’s likely the market will wait until Thursday when several EU nations release February CPI results.
USD/JPY NY brought the bid back for USD/JPY, using the o/n pullback toward the Asia and late NorAm lows from Friday at 120.58 as a fresh buying opportunity. USD/JPY gains in NorAm trading had the look of further Japanese pension fund reallocation out of JGBs and into foreign stocks and bonds, as well as Japanese stocks. USD-JPY 2-yr yields retreated into the London close as USD/JPY prices & N225 futures were advancing: not your typical pattern. The 60-day log correlation between USD-JPY 2-yr yields spreads & USD/JPY is a robust 0.61. Friday’s extreme Tsy yield rise after NFP skewed the hourly correlation badly, from 0.28 before NFP to 0.91 afterward. At 0.7 last, it remains high. The 121.415 intraday highs eclipsed Fri’s high and narrowed the gap on the 2014 peak at 121.86. If that peak is cleared, which looks likely given GPIF-led flows and the ongoing QQE2 from the BOJ vs a stable Fed balance sheet and relentless telegraphing of rate hikes this year by Fed speakers, the focus will be on the 2007 peak at 124.14. Had an O/S EUR/JPY rebound on day one of ECB QE and as the Jan nadir at 130.16 comes into view & Greek talks grind on.
Looking Ahead – Economic Data (GMT)
• 21:00 NZ Govt Optg Balance Jan 27.8%-prev
• 21:00 NZ Govt. Monthly Debt Jan 28.1%-prev
• 21:00 NZ REINZ HPI MM* Feb -1%-prev
• 21:00 NZ REINZ HPI Year Ago* Feb 7.5%-prev
• 21:45 NZ Elec Card Retail Sales mth Feb -0.4%-prev
• 21:45 NZ Elec Card Retail Sales YY* Feb 4%-prev
• CN M2 Money Supply YY* Feb f/c 11%, 10.8%-prev
• CN New Yuan Loans* Feb f/c 750.0b, 1470.0b-prev
• CN Outstanding Loan Growth* Feb f/c 13.8%, 13.9%-prev
• 00:30 AU NAB Business Conditions Feb 2-prev
• 00:30 AU NAB Business Conf Feb 3-prev
• 01:30 CN PPI YY* Feb f/c -4.3%, -4.3%-prev
• 01:30 CN CPI YY* Feb f/c 0.9%, 0.8%-prev
• 01:30 CN CPI MM* Feb f/c 0.8%, 0.3%-prev
Looking Ahead – Events, Other Releases (GMT)
• 22:05 AU RBA Assistant Governor Christopher Kent speaks at the National RSL Clubs Conf
