NZD consolidates below the highs
The NZD opened circa 0.7275 yesterday and was sidelined for much of the day trading in a narrow 25 point range. The currency consolidated below 23-month highs as the USD firmed across the board, a result of the hawkish FOMC minutes which stated further rate hikes may be necessary to curb inflation. The carry trade theme began to wane during offshore trading but late demand saw the NZD stage a minor recovery to open this morning around 0.7290. Focus today will be on NZ retail sales due out this morning and the G7 meeting this weekend.
Gains muted after jobs data
The AUD nudged steadily higher yesterday morning ahead of the March employment data, supported primarily by gains in the AUD/JPY cross after the IMF said it did not need to take action on yen carry trades. Employment growth came in slightly lower than expected but saw the unemployment rate return to 31-year lows. The AUD was trading near 0.8240 prior to the release, then spiked above 0.8270 before consolidating back to the 0.8250 level for the remainder of the day. Offshore sessions saw the AUD stage a small rally up through 0.8290 due to heavy Swiss buying and strong commodity gains.
Euro hits 2 year high against dollar
The main focus overnight was the ECB interest rate decision which remained unchanged as expected. However the accompanying statement by ECB chief Trichet signalled the central bank was likely to raise rates in June or beyond to keep a lid on inflation. This saw the euro rally from 1.3440 to 1.3500, a level not seen since Jan 2005. The USD slumped against most currencies with market participants reluctant to bet on the dollar ahead of the G7 meeting that starts today. Global economic imbalances and currencies will be among the topics of discussion. GBP was initially quashed on poor data but managed to recover thanks to the weaker USD. The USD/JPY headed in one direction all day ??“ falling from 119.50 through 119.00 before finding a base around 118.80.
Japan corporate prices rose 2%yr in March, continuing the dichotomy between weak domestic goods prices and robust traded goods prices.
US initial jobless claims jump 19k to 342k. The Labor Dept pointed out that seasonally adjusting weekly data for Easter is always difficult and the jump reflected likely temporary teacher layoffs. Claims should correct lower in coming weeks. This blip higher won??™t be captured by the monthly payrolls report in April, even so April jobs growth is unlikely to match March??™s 180k.
US import prices jump 1.7% in Mar. Rising oil prices drove the surge in import prices in March. That will drive a sharp widening in the March trade deficit (with partial offset from a 0.7% rise in export prices) though note that we are forecasting a slightly narrower Feb deficit, due tonight. The import price figures also hint at upside risk in the March PPI and CPI reports (due tonight and next week).
US retail looking up? Adding weight to the view that retail sales picked up in March (based on accelerating weekly sales reports and strong jobs growth and hours worked in the sector), the monthly chain store sales report showed same store sales accelerating from 2.5% yr to 5.9% yr in March.
The European Central Bank left its repo rate unchanged at 3.75% following the Council meeting. However the statement made it clear that a further rate rise is in the pipeline, if not imminent. Emphasising that point, in the Q&A ECB chief Trichet said ???I would not say anything today that would be aimed at changing expectations for June???. It really couldn??™t be clearer! That is also consistent with Westpac??™s forecast of a 25bps rate rise in June.
Euroland GDP growth was unrevised at 0.9% in Q4, for a 3.3% yr annual rate. But the composition showed household spending revised down from 0.6% to 0.4%, offset mainly by a higher estimate for investment spending.
UK trade deficit ??6.8bn in Feb. The wider trade deficit suggests that any contribution from net exports to Q1 GDP growth will be shortlived.