NZD retreats from highs
The NZD opened at 0.7290 yesterday then pushed up through 0.7300 before falling back off the 23-month high after profit taking and a slightly firmer USD. During the local session we saw NZD consolidate around the 0.7270 level, maintaining support from yield advantage and the possibility of further RBNZ tightening. NZD profit taking also extended through to the crosses where NZD/JPY fell from 87.00 to an intraday low of 86.42. Weak Japanese machinery orders and an IMF statement that further action is not required to address the carry trade issue saw NZD recover against the JPY, the pair rallied through 87.00 overnight. The NZD opens up this morning circa 0.7275.
AUD eases off on profit taking
The AUD steadily lost ground yesterday largely due to profit taking. Having touched its highest level since October 1990 at 0.8267, the AUD eased throughout the day with noted sellers out of Japan. However investor buying on dips and some strong home loan data helped to keep AUD supported above the 0.8230 level. Overnight, the currency trade in a narrow 25 point range consolidating around 0.8250. We open up at 0.8246 this morning, with near term direction likely to come from the G7 meeting this weekend
Mixed message from FOMC minutes
A proposal from the UK Treasury which will allow UK based multinational companies to repatriate foreign profits tax free provided good support for GBP during yesterday??™s Asian time zone. Estimates noted that up to $26bn of funds could be repatriated to the UK. This saw GBP climb through 1.9800 before settling back to around 1.9770 ahead of the FOMC minutes. The minutes highlighted that there was still uncertainty about the outlook for both growth and inflation however it remained hawkish enough to give the USD a slight boost against most currencies but gains were modest suggesting upside progress in the greenback could be difficult going forward. The euro held onto the 1.3400 handle while USD/JPY failed to make much progress above 119.50 and subsequently retraced to around 119.25.
Japanese data: Feb machinery orders declined by 5.2% (+3.9% in Jan). March headline bank lending rose 1.0%yr, down from 1.3%. Feb seasonally adjusted current account surplus was ??1487bn, compared to ??1848bn in Jan.
US FOMC minutes confirm ???additional firming may be required???. The minutes to the FOMC meeting on March 21 stated quite clearly that ???firmer policy firming might prove necessary to foster lower inflation???, even though the press statement three weeks back dropped reference to ???additional firming???. While the Committee noted increased uncertainty and downside risks to growth in the minutes, upside risks to inflation had also increased, so their bias, one could argue, was only softened marginally if at all.
The IMF??™s latest World Economic Outlook includes a downgraded US GDP forecast for this year, from 2.9% to 2.2%, mostly due to housing. The IMF updates its numbers twice yearly, previously in September 2006.
Canadian housing starts jump 8% in Mar. Housing starts have been incredibly volatile of late, with only two of the last eight monthly swings being worth less than 7%. However a moderate downtrend of sorts might be emerging, with starts in Q1 down 1.7% on Q4 last year, and down 10.5% on Q1 last year.
UK leading index up 0.8% in Feb. The index accelerated quite dramatically in the first two months of the last quarter. In Feb, 0.7 ppts of the 0.8% gain came from the very strong orders and output readings in the CBI industrial trends survey, so the result is not really fresh news.