FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The US dollar strengthened after Fed Chairman Bernanke said that further commodity price rises could boost US inflation, and that the Fed would have to respond if higher inflation was sustained. Nevertheless, he felt any inflation spikes are likely to be “transitory”, which diluted the apparent hawkishness of his remarks. The RBA kept policy unchanged, as expected. EURUSD traded 1.4186-1.4233, USDJPY 83.93-84.49. Regional Fed Presidents Evans (FOMC voter) and Lockhart (non-voter) did not offer any major new perspectives. Evans said the prescribed $600 bn could be the right number for QE2 given the ongoing improvement in the economy. When the Fed initially launched QE2, Evans memorably suggested that more than $600 bn might ultimately be needed. As such, his latest remarks indicate he has become less dovish, and that he now aligns himself with mainstream Fed thinking. The March 15 FOMC minutes are due and since we have heard most of the FOMC members speak recently, the views expressed should not be too surprising. Some differences of opinion should be expected in the text, especially given that Philadelphia Fed President Plosser said on Friday that “debates about policy have been robust”.
JPY
Referring to FX intervention, Finance Minister Noda said he would “seek continued cooperation” from his G7 counterparts at an upcoming meeting. The next scheduled meeting is due to take place on May 26-27.
Economy Minister Yosano pointed to one of the drawbacks of the recent yen weakness, noting that it makes Japan’s economy more vulnerable to higher oil prices.
Our analysts raised their 3m USDJPY forecast to 90 (prev. 85), and our end-2011 and end-2012 forecasts are under review. Still accommodative monetary policy from the BoJ, the lurking threat of G7 intervention and a possibly more active overseas investment bias from Japanese investors could keep the yen weaker.
AUD
The RBA opted to leave the policy rate unchanged at 4.75% for the fourth consecutive meeting. The accompanying statement was largely unchanged: monetary policy remains “appropriate”, and “the high level of the exchange rate” is still helping to control inflation. The statement did acknowledge though that “the resumption of coal production in flooded mines is taking longer than initially expected”. Our Australian economics team sticks to its view that the RBA will wait until August before administering another hike.
Net exports for February fell sharply to -A$0.205 bn (cons. +A$1.2 bn). Extensive flooding was largely to blame, and our economists note the data raise the risk of a negative Q1 GDP print.
NZD
Finance Minister English said he “would be surprised” if another RBNZ rate cut were needed to help stabilise the economy in the wake of February’s Christchurch earthquake.
CAD
The BoC’s Business Outlook survey showed some concern on future sales growth and higher inflation expectations while the BoC’s Senior Loan Officer Survey continued to show improving credit and lending conditions.
TECHNICAL OUTLOOK
EURCHF stalled in front of 1.3205.
EURUSD BULLISH The pair is consolidating below 1.4282; a break here would expose 1.4373. Initial support lies at 1.4062.
USDJPY BULLISH Initial resistance is at 84.73, break above this would pave the way for gains to 85.40. Support lies at 83.13.
GBPUSD BEARISH Break through 1.5972/37 zone would expose 1.5867. Resistance is at 1.6224.
USDCHF NEUTRAL Need a break trough 0.9340/69 to trigger the bull trend. On the other hand, pullback through 0.9127 would expose 0.9096.
AUDUSD BULLISH Breach of resistance at 1.0425 would expose 1.0500, while initial support lies at 1.0269.
USDCAD BEARISH Focus is on initial support at 0.9600 ahead of 0.9584. Resistance is at 0.9707/54 area.
EURCHF BULLISH Stalled in front of 1.3205, break of this level would pave the way for gains to 1.3287. Support is at 1.3011.
EURGBP BULLISH The cross targets initial resistance at 0.8885, move above this would open the way to 0.8942. Initial support is at 0.8776.
EURJPY BULLISH Outlook remains bullish; rise through 122.29/61 would expose 125.00. Near-term support is at 117.68.
SCHEDULE
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