After its miserable performance last week, the dollar turned around and gained modestly against several currencies overnight. Its biggest gains were against the yen, after the Bank of Japan surprised the market by doubling one lending facility to JPY 7tn and said individual banks could borrow twice as much low-interest money as previously under a second facility. While the efficacy of the move is questionable – companies already have record amounts of cash and deposits, so funding constraints are not necessarily a constraint on investment – nonetheless the move is a sign that the BoJ is concerned about Japan’s weak growth after the disappointing Q4 GDP data and is committed to supporting the economy as much as possible. That increases the likelihood that it will decide to accelerate its expansion of the monetary base after the consumption tax hike in April, which would be JPY-negative. Indeed, a recent Bloomberg survey shows 25 out of 34 economists forecast such a move will take place by the end of September, with 13 of those forecasting a move by end-June. I also expect that they will and that the move will further boost USD/JPY (that is, weaken the yen). AUD/USD was little changed after the release of the minutes of the latest Reserve Bank of Australia meeting. The minutes said the members “commenced their discussion of the domestic economy by focusing on the higher-than-expected reading for consumer price inflation in the December quarter,” which is not a good sign if you’re looking for further easing. About the AUD, they noted that it had depreciated further since the December meeting and said “if sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy.” This was in contrast to the statement in December, when they said that “members agreed that (the exchange rate) remained uncomfortably high and a lower level would likely be needed to achieve balanced growth in the economy.” In other words, the RBA felt at the December meeting (when AUD/USD was at 0.9122 the AUD TWI was at 69.7) that further depreciation was necessary, but by the time of the February meeting (when AUD/USD was at 0.8937 and the AUD TWI was at 68.6) that sufficient depreciation had been achieved. Personally I don’t think the decline in AUD since December has been that significant and I think the country’s terms of trade are still deteriorating. When I read reports about iron ore stockpiles in China reaching record highs, I can’t be optimistic about the AUD. The main event on the European agenda today is the German Zew survey for February. The current situation index is expected to rise to 44.0 from 41.2 in January, while the expectations index is forecast to fall slightly to 61.5 from 61.7. Last month, the expectations index came out first and was below expectations, sending EUR/USD lower, but a few minutes later, the current situation index came better than expected and EUR/USD recovered the lost ground. The Eurozone current account balance for December is also coming out, but no estimate is available. Sweden’s CPI for January is expected to remain at +0.1% yoy. From UK, the nation’s CPI is expected to have fallen 0.5% mom in January vs a +0.4% rise in December. However, this will keep the headline yoy rate unchanged at +2.0% and drive the core yoy rate higher at +1.9% from +1.7% previously. The UK PPI for the same month is expected to have seen no change for a second consecutive month. Figures like these are not likely to have a material impact on GBP. In US, the Fed will hold an open meeting to discuss banking supervision. As for the indicators, the Empire state manufacturing survey for February is expected to fall slightly to 9.00 from 12.51 in January, but as the January reading was a sharp and unexpected rise from 0.98 in December, I wouldn’t expect a modest decline to have a negative impact on USD. The National association of Home Builders (NAHB) housing market index for February is estimated to stay at 56. We also get the revisions of the US CPI. Each year ahead of the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the completed calendar year. Besides Governor Kuroda, we have three ECB speakers on Tuesday’s schedule: ECB Chief Economist Peter Praet and Governing Council members Erkki Liikanen and Luis Maria Linde.
Posted on: Tue, 18 Feb 2014 08:11:42 +0000
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