By Raiko Shareef
The defining piece of economic news over the local long weekend was a very soft US business investment report on Friday, which saw the USD knocked back across the board.
Overnight, Greek Prime Minister Tsipras’ side-lining of Finance Minister Varoufakis supported hopes for a timely Greek debt deal.
Headline US durable goods orders in March rose a punchy 4.0% m/m, well above expectations, but that was almost entirely due to chunky airplane orders. But it was the 0.5% m/m fall in core capital goods orders (excl. aircraft and defence) that drove the market reaction.
That measure, with downward revisions to previous months, paint a very soft picture for the business investment component of the Q1 GDP report (due tomorrow). The Atlanta Fed’s ‘GDPNow’ estimate stands at 0.1% annualised, against a median market estimate of 1.0%.
Bloomberg’s US Dollar Spot Index closed 0.6% lower on Friday, with USD losses largest against GBP and AUD. The latter continues to benefit from some re-pricing of the risk of near-term RBA rate cuts.
Our NAB colleagues on balance now favour a rate cut in August, having previously expected one by May. On the back of that delay, we raised our Jun-2015 AUD/USD forecast to 0.78 from 0.75. Our year-end pick remains at 0.74.
In an otherwise quiet Monday session, Greek Finance Minister Varoufakis has been removed from the debt-deal negotiation table by his prime minister. Varoufakis’ hard-ball tactics have been a source of huge frustration for the Brussels group of international creditors.
The appointment of a more conventional negotiator, more familiar with the European bureaucracy, has stoked optimism that a deal will be reached before large payments are due in May. The news helped EUR/USD break above 1.09 early this morning.
NZD is firmly in the middle of the pack in terms of performance against USD since Friday, with NZD/USD posting a two-day gain of 0.7%. High-yielding currencies have generally been outperformers, as continued softness in US data tends to reinforce the ‘low for longer’ US interest rate story.
The holiday-shortened week promises to be busy. Q1 GDP reports are due from the UK (tonight) and the US (Wed), while the FOMC, the RBNZ, and the Bank of Japan are all due on Thursday.
Updated: content revised by BNZ
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