NEWS / Foreign Exchange

USD firms against yen

NZD shy of post-float high

The NZD ended the week in sight of post-float highs, having recovered from Thursday??™s equity market related sell-off. Domestically, the currency ranged between 0.7425 and 0.7455, but again strengthened during the overnight session to post a 0.7485 high, just shy of Wednesday??™s post float high of 0.7493. Attention is now squarely focused upon this week??™s interest rate review on Thursday, with the market currently pricing the chances of a hike in the OCR to 7.75% at around 75%.

AUD firms ahead of key CPI release

The AUS also recovered from Thursday??™s sharp sell-off to end the week towards a 17-year high. In the local session, the AUD ranged between 0.8340/66, before pushing higher to 0.8378 offshore. Key CPI data is due for release tomorrow, with markets in Australia and New Zealand closed on Wednesday in observance of the ANZAC Day holiday.

USD firms against yen

With China??™s CPI and GDP figures out of the way and no immediate tightening measures by the PBoC in response, the green light was given for investors to return to the carry trade. This saw USD/JPY rally towards 119.00 as yen positions were unwound. The euro reached a fresh two year high of 1.3638 before reining in momentum and pulling back to 1.3585. GBP/USD won the prize for volatility among the majors rallying 50 points to 2.0070 then tumbling to 1.9990 after softer-than-expected March retail sales then recovering to finish the session above 2.0000.

Japan's all-industry activity index rose 0.9% in February. The AAI beat expectations of a 0.3% fall principally because IP was revised from ??“0.2% to +0.7% between the forecasts being collated and the release of this index. The result follows a (revised) January reading of -0.2%. However, the two months together give a steady uptrend.

Fedspeak: Fed Governor Fred Mishkin said the mostly likely outcome over coming quarters is a continued moderate rate of economic expansion accompanied by some easing of pressures on resources.

Canadian retail sales rise 0.1% in Feb. This was despite soft auto sales. However a near 5% jump in gasoline sales due to rising prices meant that ex auto sales rose 1.0%. Food sales were also solid, but this was also mainly a price effect. In real terms, sales were down 0.7% in Feb, and this will be a drag on GDP forecasts for Q1.

UK retail sales volumes rose 0.3% in Mar, on top of their 1.6% bounce in Feb. However the weak start to the quarter means that Q1 sales volumes rose just 0.4% compared to 1.4% in Q4. Hence our expectation for slower Q1 GDP growth.

French consumer spending bounces 0.7% in Mar. This leaves intact a solid trend, and with German retailing showing signs of recovering from the VAT hike in Jan, the broader Euroland consumer picture for Q1 is looking quite solid.