NZD follows AUD and euro higher overnight
The NZD consolidated above 0.7000 yesterday with some initial buying noted on the back of the stronger AUD; this saw the currency trading to around 0.7050 where importers gratefully took advantage of attractive levels. The NZD spent the rest of the day quietly drifting back down to just above 0.7000. In the only data released on the day, net migration inflow for Feb was 520 while annual net migration was 13,151, continuing its recent downtrend. The currency was sidelined in overnight trading but showed an upward bias as it played ???catch-up??™ to respective AUD and euro rallies.
AUD trading firmly above 0.8000
The AUD traded confidently through 0.8000 yesterday and in the process broke through a major psychological barrier as it posted its highest level since Dec 1996. A potential interest rate hike clearly remains in the forefront of market participant??™s minds and appeared to be a key catalyst for AUD breaking new ground yesterday. Data showing Q4 dwelling commencements fell 0.8% was totally ignored by the market in the wake of the strong bullish sentiment. Overnight trading saw the AUD confined within a narrow 30-point range and the currency opens comfortably above 0.8000 this morning.
USD/JPY slides on Zhou comments
Having strengthened in early trade to a high of 118.02, USD/JPY moved sharply lower following the publication of an interview with the Chinese Central Bank governor Zhou Xiaochuan. The article quoted the governor as saying that Chinese foreign currency reserves were ???high enough??? inferring that China would stop amassing USDs. As a result the USD slipped to an intraday low of 117.03, before settling at 117.25. The euro was largely sidelined, trading between 1.3271 and 1.3318, while Sterling strengthened above 1.9600, as a stronger-than-expected CPI reading bolstered the case for a further interest rate increase in the UK.
Bank of Japan on hold, unanimous vote, as widely expected. The Bank bought itself quite a bit of time with its Feb hike. The combination of patchy price and consumption data and the July upper house elections are more than enough to keep rates on hold until well into Q3. The debate is now about what the data will look like at mid year. The Bank will be able to comfortably look through any near term weakness, such as a soft Q1 GDP number or a negative print on the CPI. We also expect that the depth of current concerns about the US economy will have adjusted in a positive direction by Q3, reinforcing the benign external backdrop the Bank faces.
US housing starts up 9% in Feb. Although even stronger than Westpac??™s above market 7% forecast gain, starts only reversed part of their 14% Jan plunge. Weather was still a factor at play, with the Northeast and Midwest recording steep falls, though not enough to offset the gains in the South and West. House permits fell 2.5% last month, but that left their annualized pace still a little above that of starts, so a further starts recovery in coming months is still possible, despite the ???headwinds??? of less robust home builder sentiment and the imploding sub-prime mortgage market.
Canadian CPI jumps from 1.2% yr to 2.0% yr in Feb. Gasoline prices rose as expected but there was also a surprise acceleration in the core CPI, up from 2.1% yr to 2.4% yr.
German producer prices 2.8% yr in Feb. That??™s the slowest pace since 2004, largely due to lower energy prices.
UK inflation 2.8%yr in Feb. The slight acceleration was in line with Westpac??™s forecast, so to our mind does not materially increase the prospect of a BoE rate rise, though that is still a significant risk. Lower energy costs are set to pull inflation lower in coming months, but in Feb higher food costs and a one-off tax on air-travel were offsetting factors.