Market Brief
The latest batch of economic data from the US came in mostly on the soft side yesterday, casting a shadow over the country’s economic outlook. Durable orders rebounded less than expected in March, suggesting that the contraction in the factory sector is not over. The indicator rose 0.8%m/m in March, missing median forecasts of 1.9%, while the previous month’s reading was downwardly revised to 3.1%. After stripping out demand for transportation goods, new orders shrank -0.2% versus an expected increase of 0.5%.
On the release, EUR/USD jumped 0.60% to 1.1340, before consolidating at around 1.13 amid a slight improvement in both the Composite and Service PMIs. The first printed at 51.7 in April from 51.3 in March, while the latter rose to 52.1 from 51.3. The bottom line is that we do not yet have a clear sign of recovery yet as most US sectors continue to surprise significantly to the downside. The Fed’s statement will therefore emphasise the weak US outlook.
With the exception of the Australian dollar, which was literally hammered, it was a relatively quiet trading session in Asia with most G10 currencies trading sideways. AUD/USD fell 2% to 0.76 after headline inflation collapsed to the lowest level since the fourth quarter of 2008, printing at -0.2% versus +0.2% expected. Core inflation (excluding the most volatile components) printed at +0.2% versus 0.5% expected, down from 0.6% in the previous quarter. We expect the Aussie to continue moving lower as sellers rush to the market and push the Australian dollar lower in anticipation that the Reserve Bank of Australia will step in and lower its key interest rate in an attempt to boost inflation.
In New Zealand, the trade balance came in on the soft side, printing at NZ$117m versus NZ$401m median forecast, as exports fell more than expected. The slump in the values of primary produce exports has widened the annual trade deficit. The export of dairy products shrank another 12.2% in March after a contraction of 5.7% in the previous month. Similarly, meat products’ exports fell 10.9% after a negative figure of 8.3% in February. Only crude oil prices and fruit export values increased over the period and helped to limit the damage. Indeed, this is the largest trade deficit since April 2009. In such an environment, NZD/USD fell 0.50% in Wellington. Moreover, tonight’s RBNZ rate decision will likely serve to remind investors of the central bank’s continued dovish bias and that it does not look favorably upon the recent kiwi appreciation.
Today traders will be watching retail sales from Spain; the economic tendency survey and trade balance from Sweden; consumer confidence, business confidence and economic sentiment from Italy; GDP figures from the UK; MBA mortgage applications, pending home sales and the FOMC rate decision from the US; RBNZ rate decision and Brazil rate decision.
Currency Technicals
EUR/USD
R 2: 1.1714
R 1: 1.1465
CURRENT: 1.1326
S 1: 1.1144
S 2: 1.1058
GBP/USD
R 2: 1.4959
R 1: 1.4668
CURRENT: 1.4609
S 1: 1.4284
S 2: 1.4132
USD/JPY
R 2: 113.80
R 1: 112.68
CURRENT: 111.79
S 1: 107.63
S 2: 105.23
USD/CHF
R 2: 1.0093
R 1: 0.9913
CURRENT: 0.9718
S 1: 0.9476
S 2: 0.9259