by Raiko Shareef
NZ Dollar
The NZD finished the week with somewhat of a whimper, falling 0.1% against the USD to 0.8660.
However, in the context of an outstanding week, a bit of profit-taking seems understandable.
Last week was the NZD’s strongest since the first week of February.
The NZD also pared its gains against the EUR and the GBP, while the somewhat inexplicable JPY weakness meant that the NZD/JPY was the odd one out, rising 0.5% to 89.0.
The AUD was the only major currency to outperform the NZD last week, and NZD/AUD was 0.35% lower for the week at 0.9360.
Today sees the ANZ business survey, which would be hard-pressed to beat the 20-year high set in February.
We think the more important news would be in the pricing intentions component, which rose to above-average levels at the last reading.
The other data to watch for this week will be Fonterra’s Global Dairy Trade auction on Wednesday morning. Prices broke below a well-worn range at the last auction.
We expect dairy prices to continue to fall over the year, reducing a key support for the NZD.
In that context, Thursday’s ANZ commodity price index will also be worth keeping an eye on.
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Majors
Most major currencies lost ground against the USD on Friday, with wholesale JPY weakness the most eye-catching theme.
The JPY lost 0.6% against the USD to 102.83, and was sharply weaker against other major currencies. The move had little to do with data, with Japanese CPI coming in exactly as expected at 1.5% y/y. There is some chatter about capital outflows from Japan at the start of the new fiscal year (1 April), and that JPY weakness stemmed from speculative investors moving to get in front of that flow.
The EUR dropped suddenly on the news that deflation had returned to Spain, with the preliminary reading of that country’s CPI for March printing at -0.2% y/y. The EUR recovered through the rest of the session, with the markets calmed by Germany’s inflation print coming in as expected at 0.9%. Today sees the euro-zone number, expected to be 0.6% y/y, which would mark a fresh cyclical low. The EUR/USD trades at 1.3760 this morning.
This week sees a heavy data calendar, with plenty of top-tier releases on the cards. Close to home, the Reserve Bank of Australia seems unlikely to waver from its bottom line on Tuesday, and will stick to: “the most prudent course is likely to be a period of stability in interest rates”. Its statement might see some extra commentary on the AUD, given that the currency is at a four-month high.
Just before that, the official PMI for China will be released, with the consensus picking that China’s manufacturing sector will just remain on the right (i.e. expansionary) side of the break-even 50 mark. The final reading of the disappointing HSBC China PMI is also due. Recall the last reading showed a fall from 48.5 to 48.1 in March.
In Europe, the ECB remains in a delicate position, with inflation at cyclical lows. Senior officials, including the Bundesbank’s Weidmann, maintain that the low level of inflation will prove temporary. We anticipate that the ECB will leave policy settings unchanged on Thursday, but will stress that rates will not be raised until spare capacity in the economy is eliminated.
Last but not at all least, the market will be closely watching US data this week, to ensure that the Fed’s ‘data-dependent’ policy outlook is not thrown off track. Tuesday’s ISM reading on manufacturing health is expected to improve from 53.2 to 54.0 in March.On Friday night, the headline non-farm payrolls jobs number is expected to build on the February’s 175k rise to print at 190k. Note that the latest speculative positioning data from the CFTC/IMM show that outstanding USD long positions have been pared to just 20k contracts, from 46k last week. The upshot is that the USD should more readily strengthen to improvements in US data flow.
Other news:
* US Univ. of Michigan consumer confidence 80.0 vs 80.5 exp.
* US PCE core inflation 1.1% as expected.
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