Currencies
BoE minutes and nasty UK public borrowing numbers results in standing 8 count for GBP
22nd Mar 12, 8:23am
by
By Mike Jones
NZD
It’s been a 24 hours of mixed fortunes for the NZD. After spending the Asian session grinding up towards 0.8220, the NZD/USD surrendered all of these gains overnight.
The ‘growth-sensitive’ NZD and AUD again underperformed overnight, as the USD continues to find support. This likely reflects a) the fact the NZD and AUD have been in vogue amongst the speculative community, and speculative accounts are now trimming previously large net long positions, b) markets are nervous about a sharp slowing in Chinese growth, and the NZD and AUD are highly leveraged to China and commodity prices.
Overall, investors’ risk appetite lost a little more steam overnight. A tepid bunch of economic data releases simply underscored investors’ more cautious attitude towards global growth.
Global equity markets are either flat or modestly in the red. Against this backdrop, the ‘safe-haven’ USD found some more legs, knocking most of the major currencies lower.
AUD/USD slipped from 1.0520 to around 1.0450, EUR/USD lost a bit over ½ cent to 1.3200, and NZD/USD slid back to around 0.8150.
Looking ahead, all eyes are on this morning’s Q4 GDP report. BNZ economists and the market are looking for a 0.6% advance (2.2% y/y), in line with what the Reserve Bank had in its March MPS. The dispersement of analyst forecasts suggests an upside miss to the consensus would be more of a surprise than an undershoot. So the NZD may be skewed to react to the topside.
Across the Tasman, the RBA’s Debelle speaks at a conference in Sydney. Expect headlines from 11am (NZT).
Resistance on NZD/USD is expected to be encountered on any bounces towards 0.8240. However, we remain of the view a further leg lower is the bigger risk. Solid support is eyed towards the 200 day moving average at 0.8090.
A daily close below this level would suggest a deeper correction towards 0.8000 is on the cards.
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Majors
In relatively cautious trade, rising ‘safe-haven’ demand saw the USD strengthen against most of the major currencies overnight.
Concerns about the strength of the Chinese economy certainly seem to have knocked some of the wind out of the market’s sails. Last night’s mostly weaker than expected economic data haven’t helped investors’ mood.
Global equity markets are either flat or down, and bond yields are lower across the board.
Last night’s gains in the USD were led by a sharp weakening in the GBP/USD. Indeed, the GBP suffered a one-two punch from dovish Bank of England minutes and nasty UK public borrowing figures. There were relatively few surprises in the UK budget.
The BoE MPC voted unanimously to keep rates on hold at 0.50%, but was split 7:2 on asset purchases. Two members unexpectedly voted for an additional £25 billion in asset purchase. Meanwhile, February figures showed UK public borrowing was almost twice the expected amount (£15.2b vs. £8b expected). The combined effect saw the GBP/USD knocked from around 1.5920 to below 1.5850.
Looking ahead, we expect a £25b extension to the BoE’s asset purchase programme in May. This helps underpin our view of further GBP underperformance in the short-term. Our June GBP/USD forecast sits at 1.5600.
US home sales data came out a smidge below market expectations (4.59m vs. 4.61 expected). Nonetheless, the data support the broad view of a trend stabilisation in the US housing market.
As such, the figures were seen as a good enough excuse to sell EUR/USD. EU-US 2-year swap differentials have been edging lower of late, as US data has improved and US interest rates moved higher. They now sit at 45bps, from above 60bps at the start of February.
With fundamental support waning, we may see EUR/USD remain under downward pressure in coming sessions.
Tonight’s Flash PMI estimates for the Euro zone are likely to show economic momentum continuing to recover from the weakness towards the end of last year.
The composite Euro area measure is expected to edge closer to the key 50 level indicative of expansion, from 49.3 in February. Jobless claims data will be the focus in the US, while the UK has retail sales.
Near-term support on the USD index is eyed towards 79.20, with initial resistance at 80.50.
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