By Raiko Shareef
The USD continues to edge lower, reflecting the consensus that Fed Chair Yellen’s testimony has pushed back the time at which the Fed begins to raise rates. Some country-specific factors have seen the commodity cousins AUD, NZD, and CAD clustered near the top of the leader-board.
To be clear, as we noted yesterday, we did not see anything nefariously dovish in Yellen’s testimony. The only thing that is clear is that FOMC has given itself more flexibility than before. If US data begins to positive surprise once more, the market will quickly jump back on to the ‘buy USD’ bandwagon.
Just after our note went out yesterday, Bank of Canada Governor Poloz commented that January’s shock rate cut was an “insurance” measure, and the Bank could now afford to see how the economy responds. This saw the interest rate market reduce its expectation of a further 25bp cut at the next meeting from 80% to 40%. The CAD gained strongly, sparking USD weakness across the board. USD/CAD fell from above 1.26 and dipped below 1.24 last night, a 2.0% peak-to-trough loss over the past 24 hours.
The charge higher in CAD had most major currencies drifting higher against the USD during the local session. AUD/USD and NZD/USD choreographed simultaneous breaks of resistance, at 0.7850 and 0.7500 respectively. The AUD resistance was a more important level, having defied convincing breaks throughout February.
That technical break was soon supported by positive data. Australia’s construction work down fell by significantly less than the market had expected. This feeds into Australia’s GDP outturn (due next week), and has analysts revising forecasts higher. The jump higher in China’s HSBC PMI gave this move further legs. AUD is up 0.8% for the day, having traded above 0.79 for the first time since January.
NZD was more a follower than a leader, with a dearth of local data. RBNZ Governor Wheeler limited policy relevant comments yesterday to Auckland’s housing shortage, noting that house price inflation is a supply issue. The market took little away from this.
NZD/USD is back at the familiar 0.7550 level, ahead of the expected Fonterra announcement this morning. An unchanged payout forecast at $4.70kg/MS should support NZD here. Any upgrade is likely to be modest, and rallies should be capped at 0.7610. Later today, the trade balance and net migration data should not give much reason to bid NZD higher.
There is plenty of data to keep us on our toes over the next 24 hours. We pick UK GDP, and US inflation and durable goods to be highlights.
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