Risk on
Further tight price action to note, but the hunt for yield – and effectively risk on – is set to continue after comments from Chinese Premier Li stated the economy is capable of achieving its main targets this year.
The ‘proof is in the pudding’ as it were, but the buoyant mood – which is spreading across a range of central banks – RBNZ, RBA and BoC more recently – is prompting a shift away from the safe havens.
This has aided the move higher in USD/JPY, but we still see cross JPY rates as the primary driver, with the likes of NZD/JPY and AUD/JPY leading the way.
For NZD specifically, the terms of trade will have been tamed from record highs as the trade balance recorded a smaller than expected NZD 103 mln, but this was all down to a much larger import number as exports met expectations. As such, no negative impact on the currency as the lead spot rate pushes back above 0.7300 to re-challenge the resistance into 0.7330-50.
NZD/JPY has now pushed past 81.50, and based on the 4H and daily RSIs looks a little overbought, but we see little reason to rein in current levels on a fundamental basis, but market dynamics and liquidity could prompt a sharper pullback than we would otherwise see in the more prominent currencies.
AUD/USD has followed higher, and through 0.7600, the spot rate has to contend with initial resistance in the 0.7625-40 zone.
This has also keeps the AUD/NZD rate tentatively above 1.0400, but we remain too close for comfort from the key lows below the figure into 1.0350-70.
The Fed speaks
Back to USD/JPY, and we have seen a brief spike above 112.00 in Asia today. Not too much to report here other than the market awaiting further evidence out of the US to underpin Fed chair Yellen’s confidence in the economy.
US Treasury yields were dampened by the durable goods orders reported yesterday, which were somewhat at odds with the Fed chair's assertions on business investment. The key 10 yr rate is a little softer today by a tick or so, having opened the week circa 2.15%. This explains the swift pullback from 112.00+ in the spot JPY rate.
More from Ms Yellen later today and after London hours, with other speakers from the Fed, including Williams and Harker likely to be overshadowed.
Data on the light side with activity indices from Dallas and Richmond, but Thursday is when we start to see the tier 1 numbers with core PCE prices due out alongside any revisions to Q1 GDP. This points to ongoing range bound markets in the interim.
EUR/USD is also well contained as it struggles for traction through 1.1200. President Draghi is set to speak again today, but last night reiterated the ECB stance of accommodative policy/low rates in order to achieve a sustainable recovery. The market continues to position for an eventual taper, but the waiting game has its risks, and we are still open to a deeper setback where 1.1100 could again be challenged – though perhaps not today!
Crunch time for Carney
For GBP, we continue to see the indecision perpetuate with Cable stuck in the mid 1.2700’s and EUR/GBP in a tight range either side of 0.8800. In the last week or so we have mentioned the trade-off between perceptions of a softer Brexit to come and (fair) valuations against the uncertainty factor in the 2 year long (if note longer) negotiations ahead.
In the meantime, UK consumer confidence has dipped, and we will get more on this from the CBI distributive trades survey later this morning.
The focus will be on the BoE however, as governor Carney delivers the latest Financial Stability Report ahead of this, speaking a little later at Threadneedle St.
Cable still looks more inclined to test higher levels based on the price action seen over the past few days, but we note plenty of strong interest into 1.2800 higher up if not the 1.2900-1.3000 zone beyond this.
Not too much to say on the CAD, as we are hemmed into a narrow range in the mid 1.3200’s. Improving domestic data has been hampered by the latest inflation stats, with weakness in the CPI number a little more than the market was expected to tolerate.
Oil prices are moderating however, and this is proving supportive to a modest degree as WTI looks a little more comfortable in the mid USD 43’s.