by Raiko Shareef
NZ Dollar
On Friday night, NZD held onto gains after strong domestic data, but will open lower this morning thanks to the situation in Ukraine.
Friday saw the release of the ANZ Business Outlook survey, which showed that business confidence is at its highest level in two decades.
More interestingly for us, inflation expectations ticked higher, and pricing intentions pushed further above average.
Overall, the report adds to the overwhelming case for an OCR hike on 13 March.
The NZD/USD popped higher on that release, and broke above resistance at 0.8400, but failed to hold above that level.
The currency closed the week at 0.8380. It will likely open lower this morning, based on the stand-off in Eastern Europe.
The week ahead sees a trio of Q4 NZ GDP indicators. First up this morning are the Overseas Trade Indexes, which should register a big bounce in merchandise export volumes.
Building Work Put in Place (Wed) should show a 4% increase in volume, and Wholesale Trade (Fri) should see a 1.0% increase in sales value. Our current estimate for Q4 GDP is 0.8% q/q.
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Majors
The USD continued to weaken through Friday, but will likely strengthen this morning on geopolitical jitters.
The USD weakened against most major and emerging market currencies, with the US Dollar Index 0.6% lower since Friday morning. It was shunted lower by a better-than-expected inflation print from the euro-zone.
The single currency bloc saw inflation of 0.8% y/y in February. Given the soft German CPI on Thursday night, investors were braced for an outturn even weaker than the 0.7% median forecast. The result lessens the need for the ECB to implement easing in the near term. Consequently, the EUR/USD was 0.7% higher at 1.3800, compared to Friday morning.
But early trading this morning will be dominated by news that Russia effectively annexed the Crimean Peninsula, a region of Ukraine. In response, Ukraine’s new government has threatened war if Russia moves further into the country. These actions will be negative for risk assets this morning, and the USD, JPY, and CHF will likely benefit.
The AUD was the only major currency to weaken against the USD, falling 0.4% since Friday morning to 0.8920.
Sentiment regarding the AUD remains negative following Thursday’s terrible capex report, and softer credit data released on Friday probably did not help.
The week ahead is very, very busy. No policy change is expected from the Bank of Canada (Wed) or the Bank of England (Thu). The ECB (Thu) will be more interesting, but will likely choose to continue to talk a soft outlook rather than take outright action. A plethora of PMIs are due for release, most importantly the US ISM (Mon). Expectations for Australia’s Q4 GDP (Wed) have softened since last week’s data, with downside risks to the 0.7% consensus forecast. The week will be capped off by US non-farm payrolls (Fri).
Other news:
* US Q4 GDP 2nd estimate at 2.4% y/y vs. 2.5% expected.
* China’s official PMI for February at 50.2 vs. 50.1 expected.
* German retail sales for January at 2.5% m/m vs. 1.0% expected.
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