Kiwi now at top end of range; Japan now expected to step up its QE program

by Raiko Shareef

NZ Dollar

The NZD/USD is effectively unchanged from its closing level on Friday of 0.8360, after drifting lower through the overnight session.

Yesterday morning saw the release of NZ’s Q4 retail sales figures, which rose “just” 1.2%, against market expectations of a 1.7% rise. Despite the headline miss, the trend in retail sales volume growth remains in line with our expectations of a booming domestic economy. As such, we expected the initial drop lower in NZD/USD to be retraced. This was the case, and the NZD/USD was higher by mid-afternoon.

However, over a largely quiet overnight session, the NZD drifted lower along in tandem with the AUD, with no clear drivers at play.

The market seemed to respect short-term resistance for the NZD/USD around 0.8390, but remains at the top end of recent ranges.

There are no local data releases today. The RBA minutes are due this afternoon, which may provide some direction for the NZD. Otherwise, we remain at the whim of global risk sentiment.

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Majors

The GBP and the JPY weakened against the USD overnight, but almost all the majors maintained tight ranges, in part thanks to the public holiday in the US.

The GBP/USD initially popped higher as Rightmark (a property-website operator) released data showing that house prices rose 6.9% y/y in January, the fastest annual pace since November 2007. However, the currency more than gave up these gains, falling 0.25% for the session to 1.6700.

The JPY depreciated against the USD thanks to a weaker-than-expected Japanese Q4 GDP outturn. Japan’s economy grew at 0.3% q/q, well short of the 0.7% expected. The associated measure of inflation was also softer than forecast.

These data reinforced investor expectations that the Bank of Japan will need to step up its so-called “quantitative and qualitative monetary easing”.

Investors were already expecting some further stimulus to counter the contractionary impact of a sale tax hike, which takes effect on 1 April. In this respect, today’s Bank of Japan meeting will be of interest.

Our expectation of further stimulus from the BoJ this year is consistent with our view the USD/JPY will strengthen toward 110 by year-end. This morning the USD/JPY trades at 101.90.

As expected, the strong Chinese credit data released over the weekend helped the AUD/USD higher over the local day. However, these gains were retraced last evening, and the AUD is effectively unchanged from Friday’s close at around 0.9030 currently.

Today, Minutes from the RBA’s February meeting are unlikely to provide any new insights, but will still be closely watched, just in case.

Tonight sees UK inflation, German ZEW investor sentiment, and US Empire Manufacturing data released.

The latter is likely to be affected by the adverse weather conditions that softened economic activity in the US over January.

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