NEWS / Foreign Exchange

USD economy still looking healthy

NZD recovers following narrowing trade deficit

The NZD clawed back some of the previous day??™s losses on Thursday as a market already short was forced to buy back the currency. The release of the Q4 current account saw a slightly narrower deficit of $3,930m against expectations of $4,100m. The NZD jumped 20 points immediately after the number from 0.7100 to 0.7120 but drifted back to 0.7110 for much of the afternoon. Comment from rating agency Standard & Poor??™s hit the wires stating the narrower deficit was positive but wouldn??™t affect the rating and remained a concern; the NZD dropped to 0.7090 after the release but rallied for much of the offshore session touching a high of 0.7165 as the carry trade became back in vogue. NZD/USD trades at 0.7135 as we go to print.

Risk aversion wanes, AUD benefits

After opening around 0.8050 on Thursday, the AUD gravitated towards 0.8100 on rumours of large options strikes at that level and as market jitters about Iran waned. It was a quiet data day in Australia with job vacancies for Q1 the only release; the number was down 2.3% but is not as reliable as other labour market measures so it went largely ignored. Equity markets improved slightly and the stronger NZD also helped to support the AUD. The interbank market traded at 0.8101 overnight but a weak close sees the AUD open at 0.8065 this morning.

USD economy still looking healthy

Yesterday??™s local session saw high yielding currencies rally as investors re-entered the carry trade. USD/JPY started the day trading sideways before rallying in early afternoon trade on the back of large NZD/JPY buying from US investors. EUR/USD meanwhile had a relatively sedate day and was comfortable trading around 1.3300. The broad USD rose to session highs overnight as a final data revision showed the US economy grew faster than expected in Q4 2006. USD/JPY traded to a high of 117.98 and the EUR/USD pared gains to post a low of 1.3312. Elsewhere GBP/USD steadied around 1.9600 as strong retail sales and mortgage lending offset the impact of negative data seen in the past few days.

Japanese data: February retail sales fell 0.2%yr. March small business confidence at 50.4.

US Q4 GDP growth revised up to 2.5% annualised. Although US GDP growth in Q4 was revised 0.3 ppt higher, the detail shows it was not really for ???good??? reasons. Most of the revision came from inventories and weaker imports; business investment and housing were both revised lower. Looking ahead to the current quarter, partial data to hand suggest growth will struggle to beat 2% annualised. The Fed won??™t take much comfort from the slight downward revision to the Q4 core PCE deflator from 1.9% to 1.8% as data since then have pointed to a renewed acceleration in inflationary pressure so far in Q1.

US initial jobless claims down 10k to 308k. Claims posted their fourth consecutive week of decline, confirming that bad weather in February was responsible for that month??™s spike in claims to as high as 359k. Also, the bounce in continuing claims was to enough to remove the downtrend that reappeared a few weeks back. These numbers suggest that despite the recent intensified concern about the US economy, the labour market does not seem to have succumbed just yet.

The Euroland retail PMI bounced back strongly in March, led by a jump from 45.0 to 52.8 in Germany. This suggests that the dampening impact of the January VAT hike on spending in Germany is now passing. Note too the further sharp 65k fall in German unemployment this month, also supportive of consumer resilience.

UK data mostly upbeat. The CBI retail survey pointed to stronger consumer activity in Mar, although when this index last jumped to around these levels in Jan, the official retail data were much weaker. Consumer credit growth remains subdued in the UK, but mortgage lending was solid in Feb. The value of outstanding loans rose back above ??10bn and the number of approvals held onto its recent bounce.