NZD consolidates but ends the week firmly
Friday saw the NZD consolidate narrowly in the wake of no local data or events to inspire the currency in either direction. However, with yield and carry trades still a key driver for short to medium term direction, the currency remained underpinned as it stayed near 0.7090 throughout the day. Overnight trading saw some NZD strength, however profit taking dominated as currency eased back from recent highs to end the week just above 0.7100.
AUD eases back on profit taking
The AUD saw some initial strength on Friday but backed off its highs on headlines suggesting the Qantas bid had fallen over. Nevertheless the dip created an opportunity for buyers keen to take advantage of growing expectations of another eventual rate hike in Australia. Like the NZD, profit taking also saw the AUD ease back in overnight trading after its strong run over the course of the week, however sentiment still remains bullish.
Quiet end to the week for majors
USD/JPY spent much of the day hovering around 118.00 and briefly dipped below this level around midday on the back of stop loss and EUR/JPY selling. The fortunes of EUR/USD and GBP/USD weren??™t much better which saw a tight 17 and 24 point range traded respectively during the local session. Much of the inaction was put down to a wait and see attitude to upcoming US data. The offshore session provided an opportunity for increased volatility after unexpectedly strong US existing home sales data pushed EUR/USD to an intraday low of 1.3285. Sterling also faltered on this result and briefly pushed through 1.9600.
Japanese all-industry activity index rose 0.7%mth, 1.4%yr in Jan. The two largest components of the index pulled in different directions in Jan. IP fell 1.7% while tertiary activity jumped 1.6%. Public sector activity rose 0.3% while construction was down 2.2%, with mixed detail. The 1.4% annual rate for the overall index is down on the 1.9% average for Q4.
US existing home sales rise 3.9% in Feb. Home sales posted their fourth rise in five months, and indeed their biggest monthly gain in almost three years. There is support here for the view that the US housing downturn had found a floor and was even turning higher again just as the sub-prime mortgage market implosion hit. How much of a drag that will prove to be on the data in coming months remains to be seen. The sales jump was driven by an unusually strong 14.2% surge in the northeast, although the midwest and south also rose and sales in the west were unchanged. Prices remain down a touch on where they were a year ago but with the number of months??™ supply of homes available for sale trending down from 7.4 in October to 6.7 in February, there does not yet seem to be any evidence of a glut of homes hitting the market and hence putting further downward pressure on prices.
Fedspeak: NY Fed President Geithner said that the sub-prime mortgage market turmoil probably wouldn??™t have a broader credit market impact, although it would take more time to make a full assessment. Richmond Fed President said we should avoid ???Monday morning quarterbacking??? and not be too quick to come to conclusion that easy liquidity a few years back led to poor lending decisions in the housing market. Philly Fed President Plosser said recent inflation data were not that encouraging (i.e. in the last month or two).
The Euroland current account has been back in surplus for five months now, after slipping into deficit in 2005 and much of 2006. In Jan, the surplus was ?‚¬2.7bn. Stronger exports and lower energy import prices have been a factor at play. Related to that, German import prices remained soft at 0.8% yr in Feb.
French consumer spending posted a 0.4% fall in Feb, its first decline in five months, leaving intact a solid spending trend that should help continue to underpin Euroland GDP growth.