NZD posts 22-month high
The NZD started the week relatively quietly opening around 0.7150 and spent most of the day drifting sideways until it received a boost on the back of strong Australian data. The NZD followed the AUD higher for the rest of the local session to close just under 0.7180. Overnight trading saw the NZD rally further as the theme of broad USD weakness continued and the pair traded through the previous high of 0.7203 without hesitation. It eventually posted a high of 0.7225 ??“ a level not seen since May 2005. The NZD opens a touch lower this morning around 0.7210.
Strong data sends AUD through 0.8100
The AUD opened a touch under 0.8100 yesterday morning and treaded water before spiking higher on strong data. Both retail sales and building approvals for Feb printed well above market expectations and immediately sent the AUD from 0.8090 to 0.8130. The currency held onto its gains for the remainder of the local session and extended them further in overnight trading to post an intraday high of 0.8181. The last time the AUD traded at this level was January 1997. Small profit taking towards the close of the offshore session saw the AUD retreat from its highs and opens around 0.8170 this morning.
Market led by data
Yesterday the market gained its direction through a number of offshore data releases. We started the day with the Japan Tankan survey, which came in slightly weaker than market consensus. This saw USD/JPY push up from the 117.40 lows through 118.00. This rally was shortlived and the pair moved lower to close the local session around the 117.70 level. Overnight saw further broad based US selling against all the majors as the ISM manufacturing numbers came in weaker than expected. GBP was the outperformer, leading gains throughout the session and reaching a nine week high versus USD through the 1.9800 level, as the shadow MPC voted 8-1 for an April hike with two members reportedly favouring a 50bps hike.
Japan??™s Tankan suggests resource pressures are building. Large manufacturers??™ business conditions came in at +23 in Q1 vs +25 in Q4 and market expectations of +24. The non-manufacturing headline was steady at +22. Small firms saw conditions deteriorate slightly, consistent with larger firms exercising their market power and pressuring supplier margins. Production capacity is less than sufficient. Labour shortages remain in evidence.
US ISM manufacturing dips from 52.3 to 50.9 in Mar. The manufacturing ISM continued its recent monthly see-saw pattern, although in March the dip was not as deep as we saw two and four months ago. On a quarterly average basis, the ISM was little changed from 50.9 in Q4 to 50.8 in Q1. March was constrained by a weak jobs reading, with output and new orders both a fair bit stronger than the composite headline, as they were in February. US manufacturing is not in recession, but it appears to have entered an extended soft patch, consistent with overall GDP growth around 2%. The sharp jump in the prices measure to a seven month high would reflect higher oil prices.
Euroland manufacturing PMI 55.4 in Mar. There was marginal slippage in the European manufacturing PMI in March although the average for the first quarter of 55.5 was down somewhat from 56.7 in Q4. That is consistent with our forecast that Euroland GDP growth slowed in the quarter just finished, at least partly due to the VAT hike in Germany, which dented retail spending somewhat.
UK PMI slipped back 1.0 pt to 54.4 in March, but its average level in Q1 of 54.4 is still quite a bit higher than Q4??™s 52.9. That confirms the message from other data, that UK manufacturing has been somewhat less weak in recent months, sufficient to make a contribution to Q1 GDP growth.
Bank of England data showed mortgage equity withdrawal rising sharply from ??12.2bn in Q3 to ??14.6bn in Q4, its strongest since Q3 2004. MEW in the UK peaked at ??17.3bn in Q4 2003, when house prices were growing at between 15-25% yr. They are currently running at around 10% yr.