NEWS / Foreign Exchange

A right old hotch potch

• The week ahead - A right old hotch potch
  
• Informa global markets calendar for the week ahead

The Week Ahead

A right old hotch potch

The Dollar has taken a trouncing with the broad Dollar index heading back towards multi year/decade lows. Some re-emergence of risk aversion has taken the shine off carry trades that had swung back into fashion again. The Aussie, Kiwi and Cable have all hit multiyear/ decade highs and backed off. Meanwhile, the Eur is flirting with the 1.3670 record high while the Swissie has made year to date highs versus the Dollar. The Jpy is the exception, although any further bouts of risk aversion could see this funding currency attract a bid tone - Chinese developments in particularly could be key.

Into this background is thrown a wide spread of data and events. Starting with the US, Friday sees the first pass at Q1 GDP. Q4 GDP returned a 2.5% annualised pace. A further lurch lower could raise recession fears. The case is unlikely to be helped by March existing and new home sales (Tuesday/Wednesday) plus durable goods (Wednesday). While existing home sales picked up in February, the inventory overhang rose again. As for new home sales, an acid test comes with the key spring selling season - anecdotal evidence suggests caution after January??™s and February??™s fall. As for durable goods, the February read showed a factory sector on the verge on contraction.

Alongside other data, including April consumer confidence Tuesday and final Michigan sentiment Friday, the Fed??™s Beige Book (Wednesday) will be closely scrutinised particularly since the shading to the statement after the last FOMC meeting. The last report noted that some districts saw a slowing in the modest expansion of activity and weak housing markets while price pressures were little changed. The report could well indicate whether the Fed is going to shift more towards an official neutral stance. Overall, the data is unlikely to be particularly helpful to the Dollar.

Staying in America, the BoC has its policy meeting Tuesday followed by the monetary report/press conference Thursday. The last two inflation reads in particularly have been especially unfriendly and effectively rule out any easing of policy for the foreseeable future. Key for the Loonie will be whether the Monetary Report shaves its tone from seeing risks broadly balanced and the economy evolving broadly in line with expectations ??“ the BoC is not expected to change rates from the current 4.25%. Other data includes March leading indicators Tuesday, February employment earnings Thursday and the Q2 manufacturing conditions survey Friday.

Again on the central bank theme, the RBNZ has its policy announcement Wednesday Following March's early rate hike, signs of intensifying resource pressures as well as ongoing robustness in housing and domestic demand have pumped up expectations to more than a 65% risk of a follow up move, and a 100% for June. However it is not a fait accompli with Bollard well set to raise his hawkish stance, but potentially holding this month to buy time to assess post-March hike data, especially with the Nzd surging and the recent jump in mortgage rates. Data wise, March credit card billings on Tuesday are likely to see a technical pull back after February??™s surge. After the RBNZ decision, March trade could see a small surplus. In the NBNZ business survey pricing intentions will be in focus.

On the other side of the Tasman seas, Tuesday sees Australia release its Q1 CPI, and will instrumental in setting market expectations about RBA policy and whether another rate hike is imminent - the Board meeting is the following Tuesday. However, it may not be a smoking gun with underlying inflation easing further inside RBA's 2-3% band. As a precursor Q1 PPI is due Monday and set to rebound q/q, but with a higher Aud to temper price gains. WI leading index and HIA new home sales wrap up the week, with both to remain firm. Note both Australia and NZ will be closed Wednesday for Anzac Day.

Ahead of the Golden Week holidays, Japanese markets are heavily laden; with the usual month end deluge plus the BoJ meeting and the Bank??™s key semiannual economic outlook featuring Friday. Indicators suggest the BoJ??™s March CSPI will remain firm for the third month in a row. Within Friday??™s mass of data, core national (March) and Tokyo (April) CPIs will be the focus after they both slipped into negative territory in February. Another set of flat to negative inflation is forecast; keeping BoJ on hold at its monthly meeting. On the positive front, unemployment is set to remain at an 8 year low whilst household spending growth should hold up, albeit slowing slightly. March retail sales could remain weak, but industrial output strong. The BoJ report will be the key focus for clues on future monetary policy. Reports suggest inflation for FY 2008 will be revised down; but we suspect the Bank will still maintain a moderate upwards trend and reiterate its stance towards gradual interest rate hikes.

Returning to central banks, the Norges Bank meets on Wednesday. So far, the Bank has hiked at its last four meeting to bring the policy rate to 4.0%. But domestic activity remains robust, while core inflation, albeit still well under the 2.5% Norges Bank centre-point, has been on the up since last August??™s low, raising the ante that the Bank pulls the trigger yet again. As for Sweden real side data (March retail sales Friday) and April business/consumer confidence (Thursday) may play more to the markets hawkish side, particularly after the release on the March Riksbank policy minutes with one of the board members dissenting for a hike.

The Euroland slate focuses on April national sentiment surveys. The German Ifo stands out on Wednesday.However, the strong rebound in the ZEW survey may not be reflected in the Ifo. The former is a survey of financial analysts, and far more volatile than the Ifo manufacturing survey. Moreover, the Ifo is already discounting very strong and to some extent unrealistic growth expectations, so some consolidation/cooling from around current levels may be on the cards. Meanwhile, the underlying trend in France has been firm but some of the gloss could be taken off the INSEE business confidence indicator (Thursday) by the French presidential elections (first round Sunday). Meanwhile, Italian business confidence is the softest of the big-3 and this is expected to remain the case.

A smattering of real side data is also out, but key will be the preliminary German inflation numbers (Thursday/Friday). After its nadir last summer, inflation has been picking up towards the 2% handle, while on the EU harmonised basis it moved above this level. Any entrenchment above here will be noted by the ECB especially during a period of wage negotiations risks higher compensation awards.

Rounding off the slate is the UK with its first pass at Q1 GDP. GDP should continue the above trend print of Q4. Any strength against BoE/MPC expectations of a dip, together with continued strong housing data (April Nationwide house price index Tuesday) and any further improvement in the CBI quarterly trends balance towards a positive read (Tuesday), should leave Cable even more on hot bricks. Overshadowing all this, however, is the BoE/MPC testimony to the Parliamentary Treasury Select Committee Tuesday, especially after the March inflation blow out and the writing of the letter to the Chancellor for exceeding the 3% upper target range for CPI. With all MPC members present, the TSC is likely to give the MPC a rough ride and seek to elucidate the direction of rates for the rest of the year ??“ the BoE has already effectively signalled a rate rise at the May policy.