The U.S. dollar inched higher against several of its most traded counterparts as demand for risk assets remained subdued. Risk aversion seemed to reign in the Forex as Russia continued to make its presence known in the Crimean Peninsula, while the Ukraine’s military went on with regular exercises. With political tensions shaping sentiment, market volatility dropped to the lowest level in fifteen months. The gauge which measures price fluctuations fell for a second consecutive day, as the Ukrainian Prime Minister prepared to meet with President Barack Obama. Gold Prices benefitted from risk aversion and traded higher on Tuesday due to tensions between Russia and the Ukraine, and as traders remained concerned over disappointing metrics recently issued by China. Futures for delivery in April reached $1,338.10 a troy ounce on the New York Mercantile Exchange after rallying to $1,349.20.
The euro depreciated as the gauge that measures currency market volatility fell to the lowest level in more than a year, and as the european Central Bank’s Vice-President, Vitor Constancio, indicated that investors had not completely understood recent announcements by the central bank. The euro rose last week as the ECB kept the benchmark interest rate at a record 0.25 percent and suggested that inflation could advance to 2 percent by 2016. The British Pound dipped versus the U.S. dollar even though the U.K. reported an increase in Manufacturing Production as well as in Industrial Output. The currency remained under pressure due to the demand for safe havens and the fact that bad weather had a negative impact on Industrial Production, causing the metrics to post lower than anticipated.
The yen traded range-bound against the greenback after rallying on Monday while investors awaited the Bank of Japan’s decision on monetary policy. However, policy makers indicated that there would be no changes to policy at this time as the sales tax increase looms. Economists believe that the bank is choosing to maintain the status quo in case it needs to step in should the sales tax increase prompt a contraction of the economy. The central bank reiterated its pledge to increase the monetary base while raising the assessment on Industrial Production and Business Investments. According to analysts, bank governor Haruhiko Kuroda may face challenges in attempting to reach the 2 percent inflation target as the sales tax levy may end up being a burden on households and companies.
Lastly, the Australian dollar rose against the U.S. monetary unit, rebounding earlier in the week as global markets were digesting less than stellar Chinese macroeconomics. On Tuesday, the NAB’s data posted lower for February, and the Aussie remained under pressure as speculators sought harbor assets. New Zealand’s dollar climbed against the greenback although its advance was limited as China’s export metrics continued to weigh on sentiment. Releases issued over last weekend indicated that China’s Exports plunged 18.1 percent on a YoY basis.
EUR/USD: Markets Did Not Grasp Message
The EUR/USD fell as the crisis between the Ukraine and Russia intensified, a factor that prompted volatility in the foreign currency exchange to fall the most in close to fifteen months. The EUR/USD was also affected by a statement issued by Vitor Constancio, the Vice-President of the european Central Bank, who suggested that the markets were unable to fully grasp the ECB announcement on forward guidance. Sentiment remained risk adverse as the Crimea region voted to become an independent state, and the Russian military remained poised on the Peninsula.
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GBP/USD: Industrial Production Slows
The GBP/USD slumped as the U.K. announced that bad winter conditions dampened Industrial Production, causing it to post a mere hike of 0.1 percent for January, after coming in with a 0.5 percent surge in December. On the other hand, activities in the Manufacturing sector rose and Production showed a 0.4 percent jump, surpassing forecasts for a 0.3 percent advance. In the meantime, the central bank’s governor, Mark Carney stated that the costs of borrowing money will remain low since he believes there may be a higher level of economic “slack” than policy makers believe. Mr. Carney made this comment in response to Martin Weale who suggested that the amount of slack may “be overstated.”
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USD/JPY: Sales Tax Looms
The USD/JPY traded steady while the Bank of Japan announced its plan to keep monetary easing at the current level and provided no signs it may expand easing in the future. According to economists, the implementation of the new sales tax in April may cause the Japanese economy to experience the biggest quarterly contraction since the 2011 earthquakes, which is likely why the bank may have decided to leave policy unchanged. The USD/JPY plummeted after the announcement, especially as bank officials reiterated they won’t hesitate to implement measures if the need arises. Mr. Haruhiko Kuroda, the central bank’s governor said that he sees no need for a shift in policy since the economy is providing signs of steady growth.
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AUD/USD: Aussie Weighed Down By China
The AUD/USD climbed on Tuesday although its rally was capped by concerns over the slowdown in Chinese exports. But the pair advanced despite soft domestic releases by the National Australia Bank which showed that Business Confidence slipped to 7 percent, after posting at 8 percent in January. The pair rebounded after data issued over the past weekend out of China continued to weigh on risk appetite. Analysts anticipate that as inflation rises in the euro region and China’s gross domestic product improves, the appeal of risk assets will intensify. On the other hand, some analysts predict that a worsening of geopolitical tensions could overshadow any economic developments.
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Daily Outlook: Today’s economic calendar shows that Japan will issue the central bank’s Monthly Report and data on Household Confidence. The euro region will provide metrics on Industrial Production. The U.S. will publish the Federal Budget Balance. New Zealand will announce the Reserve Bank’s Interest Rate Decision and offer the Monetary Policy Statement. The U.K. will release RICS House Price Balance. And Australia will divulge Employment Change as well as the Unemployment Rate.