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Weekly Forex Wrap Up: March 16th to 20th

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RBA Minutes neutral but rate cuts still an option

The RBA published its meeting minutes for the recently concluded March monetary policy. The minutes revealed that the RBA would be monitoring the various indicators such as unemployment, inflation and the housing market to decide the course of future interest rate decisions. The markets expect another rate cut to be delivered by the RBA probably in May. The Aussie initially sold off on the news, but managed to remain firm soon after. There were not much of news releases from Australia this week so the Aussie dollar was trading mostly off the strengths and weakness from the Greenback

  • New motor vehicle sales m/m 2.9% vs. -1.9% previously
  • RBA Monetary policy meeting minutes
  • MI leading index m/m 0.3% vs. 0.1% previously

BoJ leaves policy on hold

The Bank of Japan left its monetary policy unchanged at this month’s meeting. Citing downside pressures to inflation but the BoJ remained optimistic that inflation would pick up anytime during the fiscal year of 2015. The move from the BoJ to stand by was widely expected as the Japanese companies and trade unions entered negotiations this week for wage hikes, something which both BoJ Governor Kuroda and Japanese Premier Shinzo Abe consider vital towards lifting inflation.

In a week of a high risk event from the US, the Japanese Yen was trading firm..

  • BoJ monetary policy meeting
  • Japan trade balance -0.64tn vs. -1.21tn
  • All industries activity m/m 1.9% as expected

Kiwi keeps gains from last week

After last week’s RBNZ meeting which left interest rates unchanged and struck a neutral tone, the Kiwi managed to post a second week of gains across its peers, with the exception of the Greenback. The Kiwi initially suffered a setback with the GDT price index falling -8.8%, but losses were limited as the markets widely expected a decline. GDP numbers failed to provide a boost but kept the bullish momentum on as it met estimates. The Kiwi gained the strongest against a weaker Sterling and the Japanese Yen, while losing to the Greenback and a somewhat resilient Euro.

  • GDT Price index -8.8% vs. 1.1%
  • GDP q/q 0.8% as expected
  • Credit card spending y/y 5.8% vs. 6.2% previously

Euro shows its bullish strength

Despite weak and divergent fundamentals, the Euro single currency gave a glimpse of its bullishness as it briefly spiked against the US Dollar during the FOMC news event. Economic data from the region remains mixed but broadly optimistic. This week saw the release of the final CPI for Eurozone which remained unchanged at -0.3%, while core CPI managed to edge higher to 0.7%. Greece debt negotiations are slowly taking center stage again with a possibility that Grexit could eventually happen.

  • German ZEW economic sentiment 54.8 vs. 58.9
  • Eurozone final CPI y/y -0.3%, unchanged; Final Core CPI y/y 0.7% vs. 0.6%
  • German PPI m/m 0.1% vs. 0.2%
  • ECB TLTRO 97.8bn vs. 40bn

Sterling weakens on verbal interventions

The British Sterling looks poised to head into a period of weakness as the currency showed that it was susceptible to verbal interventions. This week, BoE chief economist Andy Haldane commented that the BoE could look to a rate cut should inflation persist at current levels, it was only last week that BoE Governor Mark Carney expressed concerns of an appreciating Sterling and its pressure on keeping inflation low. Economic data also did not help much as unemployment data was unchanged at 5.7% with the average earnings also showing a decline for the month of February.

  • UK Unemployment rate 5.7% vs. 5.6%
  • Average earnings 1.8% vs. 2.2%
  • BoE MPC minutes dovish
  • UK Public sector net borrowing 6.2bn vs. 7.7bn

US stumbles but picks up quickly

The US dollar was at risk in the run up to the FOMC statement this week, as expected the Fed replaced the word “patient” with “reasonably confident” putting a rate hike in June still as an option. Markets initially took the FOMC statement to be dovish resulting in a sharp selloff in the US Dollar, only to recover the losses a day later. The Greenback was back to leading the troupe, trading close to the 100 psychological level.

Fed Chair Janet Yellen said that any future rate hikes would be data dependent while ruling out a rate cut in April.

  • Empire state manufacturing index 6.9 vs. 8.1
  • Capacity utilization rate 78.9% vs. 79.5%
  • Industrial production m/m 0.1% vs. 0.3%
  • Fed funds rate 0.25%
  • FOMC policy statement
  • Weekly unemployment claims 291k vs. 295k
  • Philly Fed manufacturing index 5 vs. 7.2
  • CB leading index m/m 0.2% vs. 0.3%
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