FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
The RBA kept policy rates on hold overnight, broadly in line with market expectations. The better-than-expected start to the year globally has probably given central banks in general more room for manoeuvre, but our economists note that the RBA has maintained a weak easing bias and is sounding more neutral at this stage – further policy projections will be contingent upon the employment situation, but for now there doesn’t appear to be a strong case to move.
Despite the decision, AUD and risk in general appear to be stuck on a somewhat weaker footing, with Asian equities declining across the board overnight. The market may be responding adversely to the growth targets set by China at this week’s NPC session, but given that the forecasts have been well choreographed advance the moves seem to be a bit excessive.
Oil prices remain a concern, but they are probably not at levels yet warranted to demand early policy action, or destabilise growth. Investors look ahead to seven G10 monetary policy meetings over the next ten days. Event risk lurks in other forms too with Greek Finance Minister Venizelos stressing overnight that Greece is ‘ready to activate CACs if needed’. We would not be surprised to see this scenario materialise over the coming days – investors have until Thursday to declare whether they wish to accept the bond swap offer.
In the US, the ISM manufacturing report became the latest data point to surpass expectations, rising to 57.3 (cons. 56.0). Having sifted through the components of the survey our US economists have decided to keep their non-farm payrolls forecast for Friday unchanged at +190k (cons. 210k). Ahead today Eurozone growth figures are out – the market is looking for a preliminary Q4 print of -0.3%. We are in line with expectations, but growth momentum in the Eurozone should be strong enough to warrant the ECB remaining on hold later this week. Nonetheless, even in a better growth environment on a relative value basis the US is likely to continue its outperformance. Overnight EURUSD traded 1.3187-1.3226 and USDJPY traded 81.35-81.59..
EUR
The series of PMIs released across the Eurozone were mixed with the composite indicator revised down to 48.48 from 49.4. Germany and France had strong results where the forward looking components offset softer headline numbers Our European economist notes that the same is true for Italy, where expectations and new business held up while the activity index declined. In Spain the decline was instead more generalized.
Dow Jones reported that the Irish government is currently divided on the timing of a referendum for the European fiscal compact. There is greater talk of a vote than summer originally planned. Current opinion polls suggest the vote will be backed by voters.
AUD
As widely expected, the RBA kept the cash rate on hold at 4.25% for the second month in a row. The Australian dollar dropped about 30 pips soon afterwards.
Changes to the policy statement language suggest the board’s concerns about global risks have eased somewhat – both in Europe and in China. Fears around the global growth outlook have also subsided, and the statement now acknowledges that a ‘deep downturn’ is probably not occurring. Crucially though, there was no change to the RBA’s implied easing bias – the inflation outlook still provides ‘scope for easier policy’ if ‘demand conditions weaken materially’.
Our analysts expect the RBA to remain on hold for the remainder of this year given their focus on the improving global outlook, the recent fall in the unemployment rate.
Australian net exports of GDP came in better than expected at 0.3, though the current account balance was a bit weaker than expected at -$A8.37bn (cons. -$8.05bn).
NZD
S&P warned that downward pressure on New Zealand‘s sovereign rating could re-emerge if the country’s external position continues to worsen. We note that, last year, S&P and Fitch both stripped New Zealand of AAA status, but both ratings outlooks were reset to stable – where they remain. NZD continued to weaken during the Asia session, but this was largely in line with weaker risk appetite more generally.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD NEUTRAL Focus is on 1.3157, a break below which would open 1.3056. Resistance is at 1.3357 and 1.3487.
USDJPY BULLISH Resistance is at 81.87, a move above which would expose 82.25. Support lies at 81.06.
GBPUSD BULLISH Our focus remains on 1.5993, a clearance of which would reinforce the current trend. Support lies at 1.5786.
USDCHF BEARISH With the resistance at 0.9185 in place, we view the recent bounce as correction. Support lies at 0.9022 ahead of 0.8931.
AUDUSD BULLISH As long as the support at 1.0598 is intact our outlook would remain bullish with resistances at 1.0691 and 1.0744.
USDCAD BEARISH Break below 0.9886 would open the key low at 0.9842. Resistance is at 0.9992.
EURCHF NEUTRAL Resistance is at 1.2084 and support is at 1.2041.
EURGBP NEUTRAL Support lies at 0.8309, the trendline support drawn off the Jan. 9 low, ahead of 0.8265. Resistance is at 0.8354 ahead of 0.8383.
EURJPY BULLISH Resistances are at 108.74 and 109.93 next. Support is at 106.84.
SCHEDULE
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