Commodity Currencies Take Flight
Market Highlights
Data, risk acceptance supportive of AUD, NZD to end week
Data overnight put more upside pressure on the high interest rate currencies as their elevated yields attract investment from abroad. Although this last week has been witeness to a divergence on the data front between the Australian and New Zealand economies as NZ showed growth concerns with the bearish Retail sales number, last night the NZ Input PPI came in well above expectations at 2.3% q/q, far surpassing the 1.1% expected and the 1.3% witnessed at last reading. Inflation rages on while growth is poised to come off...(have we witnessed this elsewhere recently?!). This really does seem to be a global problem as many of the major economies are facing these challenges. New Zealand has shown signs that it may be the next bank to commit to lowering interest rates, but today's data say's that they are probably still not quite there yet.
As well, there is certainly a risk acceptance feel to the markets today. Asian and European equities were generally up overnight and NA looks poised to have a strong start, and this has made it easier for the Tasman dollars to partake in gains. Both currencies are up roughly 1% today, with the AUD testing the higher end of its monthly trading range.
Trichet still hawkish on inflation (surprise)
During a keynote address at the Brussels Economic Forum the European Central bank head Jean-Claude Trichet has once again reiterated his unwavering and hawkish stance on inflation. He stated that there was no room for complacency on inflation, as well as projecting the usual "economic growth and job creation" statements. While emphasizing that medium-term price stability must be ensured to promote a healthy economic environment is not a new stance for the President, the consistent inflation view shows really shows their primary concern. Growth will go through ebbs and flows, but if price data remains elevated going forward then there will be no pre-emptive strike to stimulate the economy. Structure of this nature is perhaps even more important for a monetary union such as the Eurozone, so his actions are respected and show the consistancy of the ECB policy. As it stands now, the bank will be on hold on interest rates for the time being until one side (growth or inflation) gives in.
Other news
The Dollar index is largely unchanged on the week as the big dollar has held firm against the Euro and Pound while giving way to the Canadian, Australian, and NZD dollars. It's been an interesting week for oil, which has hit new highs and is trading above 127$/bbl at time of writing on supply concerns and Goldman's upwardly revised price forecast. This is fueling speculation and if the fast money is pouring into energy, it will continue to be well bid.
Obviously, this is part of what has driven CAD around through parity, but the price action for CAD has been interesting. Many, us included, were looking for a real technical breakout under par but with the absence of any fundamental data to really drive the CAD significantly stronger, we are still just hovering around the big figure.
Although this is the last note, buried within the 'other news' portion, the US housing data that was released today perhaps deserves its own section. The housing sector was one of the main catalysts to the global credit crunch and US economic problems that have followed this past year. American wealth was wiped out in many areas by declining house values combined with high debt so today's positive Housing Starts and Building Permits numbers are a good sign for the States. Both numbers surprised to the upside with the more relevant Housing Starts number coming in at 1032k houses vs. expectations of further declines. I can't really say that this is the definitive bottom to the sector or the US economy, but the pieces of the puzzle are starting to piece together for a recovery.
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| Tyson Wright, FX Trader |
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