Dollar index extended recent up trend overnight, thanks to weakness in European majors, and took out 96 handle. Better than expected ISM non-manufacturing also helped lifted the greenback and it stayed firm after Fed's Beige Book economic report. In the Beige Book that cover early January through mid-February, Fed noted that economic activities expanded across most sectors and districts. Manufacturing activity and consumer spending generally increased with vary pace across districts. The employment market were stable or showed some growth across broad range of sectors except some oil and gas related industries. Some noted upward wage pressures in low-paid works. General price pressure remained retrained. Some economists noted that the Beige Book generally indicated healthy growth in the US economy which would further strengthening this year.
Technically, the dollar index is finally showing some build up in upside momentum. We maintain the view that further rise should be seen to 61.8% projection of 87.62 to 95.48 from 94.05 at 98.90. But again, we'd stay cautious on this bullish view. it should be noted that the pattern from 95.48 could be seen as a triangle and the subsequent move could be terminal. In other words, break of 94.05 support would be an early signal medium term reversal and would bring deeper correction. Against other currencies, EUR/USD's break of 1.1096 confirmed down trend resumption. GBP/USD's break of 1.5315 support also indicated near term reversal and the pair should target 1.4950 low again. USD/JPY, USD/CAD and AUD/USD are still bounded in familiar range even though a dollar bullish breakout is favored at a latter stage.
Talking about Canadian dollar, BoC left the monetary policy unchanged in March, following a surprising 25-bps cut in the overnight rate to 0.75% in January. The tone of the accompanying statement appeared more neutral than the previous one, thus trimming market expectations of further rate cuts in coming meetings. Seeing the hit from oil as 'even more front-loaded than projected in January', the BOC might suggest that it would tolerate disappointment in the near-term, with the expectations that growth and inflation would pick up with drivers shifting from oil to 'non-energy exports and investments. We expect the BOC to maintain an accommodative stance in coming meetings but the chance of actual rate cut has indeed been diminished. More in BoC Left Rate Unchanged, Stance More Neutral. USD/CAD dipped mildly after the announcement but stayed in range.
In Australia, RBA deputy governor Philip Lowe said that "global developments have left us with a higher exchange rate and lower interest rates than would otherwise have been the case." And, "we may not like this configuration, but developments abroad give us little choice." He noted that currencies where monetary stimulus "has been less" faced upward pressure. On the other hand, the central bank reposed to softer economic outlook by cutting interest rate and that offset some of the upward pressure on the economy. Released from Australia, retail sales grew 0.4% mom in January, inline with expectation. Trade deficit came in wider than expected at AUD -9.8b in January.
In China, Premier Li Keqiang lowered this year's economic growth target to around 7%. He noted that "the difficulties we are to encounter in the year ahead may be even more formidable than those of last year." Meanwhile, "China’s economic growth model remains inefficient: our capacity for innovation is insufficient, overcapacity is a pronounced problem, and the foundation of agriculture is weak."
Looking ahead, ECB and BoE announcement are the major focus. ECB is expected to unveil the details of the debt-purchase program of EUR 60b per month. More importantly, the central bank will release updated growth inflation forecast, including the first estimates for 2017. And markets are keen to look at the figures for a clue on the duration of QE. BoE is expected to keep policies unchanged and would likely be a non-event. Also to be released are German factory orders, Eurozone retail PMI, US Challenger job cuts jobless claims and factory orders, as well as Canada Ivey PMI.