Bernanke does not see inflation in the U.S. as being a problem

By Kymberly Martin

NZD

The NZD/USD traded with some volatility over the past 24-hours to sit a little lower at 0.8390.

Yesterday’s QSBO release confirmed the gradual recovery continues. Forward-looking indications, in general, suggest GDP growth to pick up further in H1 2013.

While labour market indicators within the survey were not exactly upbeat they did not corroborate the weakness shown in the Q3 HLFS. A bounce in the latter measure may be in the offing.

Yesterday’s REINZ data also showed the NZ housing market maintained its heat in December.

The NZD took the data releases in its stride yesterday. But overnight it failed to break above the 0.8440 level, returning to trade around 0.8390 at present.

The NZD was also broadly weaker on the crosses. The NZD/GBP once again found resistance at the 0.5250 level, pulling back to trade around 0.5220 currently.

The NZD/JPY experienced a notable pull-back overnight. The JPY bounced more broadly yesterday, breaking its steady recent downtrend (see Majors). We believe recent gains in the NZD/JPY have run ahead of ‘fundamentals’.

There is also a risk the Bank of Japan under-delivers relative to now quite aggressive expectations for easing. These factors suggest some pause or correction in the NZD/JPY uptrend is due, before it resumes later in the year. The NZD/JPY sits around 74.39 this morning.

Relative to the AUD the NZD continued its recent saw-tooth daily trading. The NZD/AUD slipped from 0.7990 to around 0.7940. Today, AU Westpac consumer confidence survey will be delivered. However, the more important driver of the cross will be tomorrow’s AU labour market data (1.30pm NZT).

Key resistance for the NZD/USD remains at the mid-December highs around 0.8470. Support is eyed around 0.8360.

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Majors

The JPY was the strongest performer over the past 24-hours. The USD index was also well supported, rising to trade at 79.60.

Overnight, ‘risk’ markets continued to take a breather after their new year run. The Euro Stoxx 50 dipped 0.50% and the S&P500, has struggled valiantly to return to flat on the day. US data overnight was mixed.

The Empire Manufacturing survey for January was weaker than expected (-7.78 vs. 0.00). Offsetting this, advance retail sales rose 0.5% in December (0.2% expected).

The gloss was also taken off sentiment by renewed focus on the US debt ceiling debate that looks to be protracted, in keeping with previous negotiations.

While demand for the ‘safe haven’ USD was fairly steady, the EUR/USD pulled back. Failing to break through the key resistance level at 1.3400 the EUR/USD has drifted lower to trade at 1.3340.

The JPY made a dramatic reversal over the past 24-hours, strengthening almost 1% relative to the USD.

Japanese officials were on the wires restating their recent mantra: the Bank of Japan will continue powerful easing; the economy is weak and boosting it is more important than limiting bond issuance; the Bank of Japan to commit to 2% inflation target.

Still, the JPY has run a long way. The market now likely needs to see some implementation of proposed actions to maintain negative JPY momentum. The USD/JPY dipped from 89.60 to 88.60 overnight.

Tonight, Eurozone CPI data for December will be released. Consensus expects it to sit at 2.2%y/y. The market will also focus on US data releases including CPI, industrial production mortgage and NAHB housing data.

In his comments yesterday, Bernanke made clear that he did not see inflation in the US as being a problem. In this vein, the market expects US December core CPI to remain at 1.9%y/y.

All its research is available here.