USD extends gain versus G10, JPY resists
(by Arnaud Masset)
After a quiet start into the week, the USD was back in full force on Tuesday as it extended gains against most of its pairs.
The Japanese Yen was the only G10 currency able to offer resistance as it rose 0.36% with USD/JPY sliding to 110.40.
The market is currently switching slowly into risk-averse mode, with the Yen and Gold seeing good inflow, amid rising global uncertainty.
Investors will soon however ever get some fresh data to get their teeth into. In the US, February factory orders (+1% m/m exp.,1.2% prev.) and durable goods orders (first est. 1.7% m/m) are due this afternoon.
Tomorrow, the publication of the FOMC will get special attention from investors who will try to read between the lines, looking for hidden hints about the pace of the rate normalisation process.
Finally, March’s job report will be Friday’s major event. The US economy is expected to have created 175k private jobs last month, compared to 235k in February. As explained a month ago, we believe that the market is less and less focused on job gains but instead monitoring wage development closely.
Looking at the headline figures, the momentum seems solid as average hourly earnings were up 2.8% y/y. Nevertheless, the sustained rise in consumer prices, which has been mostly driven by rising commodity prices, has eroded the purchasing power of the average American as real average weekly earnings dipped in negative territory during the first two months of the year.
Emerging market and commodity currencies took the bigger hit this morning as market participants shied away from risky positions. We do not think this is the time for further Dollar debasement as the global uncertainty favours long USD position, especially ahead of the French and German election. Similarly, the setback of commodity currencies will also prove temporary in our opinion as high returns are still a rare breed.
Bullish on AUD after RBA kept rates unchanged
(by Peter Rosenstreich)
As expected the RBA held its cash rate at 1.50%. Despite this, the AUDUSD quickly fell to 0.7557 on market disappointment that rate expectation should be paired back and also due to lower risk appetite and lower iron ore prices.
The accompanying statement was marginally more optimistic regarding the domestic and global economic outlook. They mentioned the improvement in trade and higher commodity prices (on-going large trade surplus) would support domestic conditions. The RBA indicated that “on-going moderate growth” will support forward indicators and backstop softening labor markets.
The RBA also highlighted risks in the housing market. They took particular care in discussing retail credit growth and risk of rising mortgage rates on outstanding loans, adding that lenders must watch serviceability analytics. Additionally, the RBA introduced a new paragraph on macro-prudent measures stating “a reduced reliance on interest-only housing loans in the Australian market would also be a positive development”.
On inflation the statement was unchanged with headline CPI expected to break 2% in 2017, with a limited upside as wage growth is subdued.
All in, it is unlikely the RBA will rise rates unless the housing market continues to accelerate and even then it is likely to use micro-adjustment tools prior to monetary policy hikes. However, we can expect the RBA to shift from dovish to neutral as growth gradually breaches the bank’s forecasted range.
Given the positive global conditions of risk taking (despite the current bout of uncertainty) we are constructive on AUDUSD, as 0.7563 should provide support for a recovery rally to 0.7633 resistance.
French Elections: Candidates return to debate
(by Yann Quelenn)
Today 11 candidates will debate for the French Presidency. At the last debate, contrary to what is said now about him being a frontrunner, Emmanuel Macron had not been successful. So this debate may see a turnaround in this presidential election, as Francois Fillon has improved lately in the polls despite the accusations that engulfed him.
Tonight’s debate will mostly be on jobs, security, and the candidates' vision for the future of France. It is clear that the European Union will be at the centre of the debate and we should see “small” candidates trying to make a difference with their views on this.
It is expected that François Asselineau, the Frexit candidate, will largely attack Macron and Fillon on this specific topic, as will Marine Le Pen. But a possible referendum if she gets elected remains somewhat unclear.
For now, markets are still not pricing a Le Pen victory. In terms of currency, the Euro is consolidating against the USD between 1.06 and 1.07 and we believe that there is more room for further downside in the short-term.