Weak USD drives NZD higher
Weakness in US new home sales for Feb has paved the way for earlier than expected interest rate cuts in the US. The data indicated that the slowing US housing market had yet to bottom out with downward revisions to Nov and Dec 2006, and the implications for US monetary policy meant USD weakness across the board on Monday. The NZD, already in an uptrend, benefited from the weak US data and pushed up to its highest level since Dec 2005. The high traded at 0.7183 before retreating to 0.7165 this morning.
AUD trades highest level in over a decade
Lacklustre trading during the domestic session yesterday failed to put a dampener on the rampaging Australian dollar. Already trading at a 10-year high, the AUD traded sideways until the offshore markets awoke. Weak US data was the catalyst for another push higher; this time to high was seen at 0.8108, a level not traded since Jan 1997. The AUD trades at 0.8100 as we go to print, and with little data out this week offshore markets will likely provide further direction.
USD under pressure on new home sales data
A relatively quiet start to the week saw the USD grind higher over the local session. EUR/USD opened below 1.3300 and slowly softened throughout the day eventually posting a low of 1.3258. USD/JPY traded a whippy 35 point range between 117.79 and 118.14 ??“ unable to make a break either way. Initially, overnight the USD continued to nudge higher as the momentum from Fri??™s strong existing home sales buoyed the currency. However the USD??™s fortune was short-lived after data showed US new home sales for Feb dropped to the lowest rate since mid 2000. This saw the USD slip against the major currencies.
Bank of Japan minutes. A gripping read. The Bank gave a lot of air time to the issues of consumption and wages growth and the forward looking nature of their policy framework. The point that the Bank was at pains to make was that any short term sogginess in inflation was outweighed by their projections for where activity and prices might be in one to two years time. This was communicated very clearly. Iwata's dissent was based around short term growth issues on the one hand (the inventory cycle in manufacturing) and a concern about declining unit labour costs due to subdued wage growth impacting upon medium term prices. He seemed to be saying that they could wait until the April Outlook report, despite the fact that in principle he held a basically positive fundamental view on the economy. On wages more generally, the Bank timidly argues that the wage bill measures that Japan relies on may have been biased lower by demographics. If Japan had a wages basket unafflicted by compositional issues, the income story may not be so weak. The Q4 national accounts were mentioned throughout the report, mostly in the context of the consumer.
US new home sales fall a further 3.9% in Feb. An exceptionally weak new home sales report. Not only did sales fall further in Feb after slumping in Jan, but revisions to Nov and Dec were substantially to the downside as well. Feb??™s annualised sales pace of 848k was the lowest since mid 2000. The weather was clearly a factor at play, with sales slumping in the northeast and midwest. It is less easy to explain a 7% fall in new sales in the south, where the weather is less of a distorting factor. Weaker sales here might reflect less investor activity in a market that until last year was very hot. The inventory of unsold homes rose to 8.1 months worth of supply, the highest since 1991. You would expect that to put downward pressure on prices, although the median price was about flat compared to a year earlier and the average price was up 7.5% yr! One explanation for that gap could be that up-market home sales are doing ok but lower end housing - often funded by subprime mortgages ??“ is in trouble.
German inflation: In North Rhine-Westphalia, the CPI jumped from 1.6% yr to 1.8% yr in March, reflecting renewed energy price gains. Other states??™ figures and the national data will be published progressively through this week.