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Commentary: Dollar performance divide grows on comments from central bankers
00:00, 12 December 2013
Although the three main resource dollars (CAD, AUD and NZD) tend to respond to the demand for the commodities these countries export over the long term, today’s trading action shows that their performance over a given time frame can differ dramatically depending on local conditions. NZD has been the top performing major currency worldwide over the last 24 hours. Yesterday’s RBNZ comments that it will raise interest rates to manage inflation as needed sparked a big rally in the Kiwi as traders speculated that a rate hike could be on the way soon, making it one of the most hawkish central banks. This was underscored by Governor Wheeler who indicated the central bank has forecast that the cash rate may need to rise by about 2.25% over the next 2 ¼ years. The RBNZ indicated the high dollar is a headwind for the economy and that it does not appear to be sustainable (really?? see their interest rate forecast above), but it made no indication of any plans to intervene again. Stronger than expected PMI released overnight adds more evidence behind the case for a rate hike. On the other hand, AUD has been absolutely slammed overnight on comments from RBA Governor Stevens who suggested that Australia needs a lower currency to support economic growth suggesting “$0.8500 would be closer to the mark than $0.9500”. He indicated the central bank would prefer stimulus to come from a falling dollar than interest rate cuts. He suggested a Swiss-style hard cap on the currency appears unlikely but once again did not rule out an intervention in FX markets to drive down the dollar if needed. Somewhere in the middle is the Bank of Canada. CAD is trading lower against the rallying NZD and USD but is outperforming pretty much all the other majors today. At a speech today, Bank of Canada Governor Poloz weighed the risk of a housing market correction against the risk of deflation when setting monetary policy. He indicated the central bank remains focused on its 2% inflation target which it intends to reach within two years. He indicated the central bank maintains a hands off approach with regard to the Loonie saying its value is whatever the markets say it is because “the market always gets it right” (more in FX than stocks I think). Significant action in FX markets has not been limited to the resource dollars today. SEK and NOK have also been taken down hard by weaker than expected Swedish inflation and employment numbers adding to the case for a potential interest rate cut at next week’s Riksbank meeting. USD continued to strengthen on anticipation that the FOMC could start to taper back on QE despite a surprisingly poor jobless claims report. The USD rally knocked gold and silver back on their heels, while EUR appears to have completed a double top. Stock markets in Europe and North American also continue to retreat as traders continue to take profits and move money off the table on anticipation that the QE liquidity party may be coming to an end soon. It is possible today that we could see some short covering or bargain hunting ahead of the weekend before Fed speculation resumes on Monday. Economic News Highlights of overnight announcements include: NZ manufacturing PMI 56.7 vs street 55.7 US jobless claims 368K vs street 320K vs previous 298K US retail sales 0.7% vs street 0.6% US natural gas storage (81 BCF) vs street (85 BCF) Canada new house prices 1.5% as expected Switzerland interest rate no change as expected, confirmed it will still defend EURCHF 1.2000 level Sweden consumer prices 0.1% vs street 0.2% Sweden unemployment rate 7.5% vs street 7.3% Upcoming significant announcements include: 1:00 pm AEDT NZ consumer confidence previous 128.4 1:00 pm AEDT Singapore unemployment rate previous 1.8% 3:30 pm AEDT Japan industrial production previous 4.7% 4:00 pm AEDT Singapore retail sales street (5.9%) 8:00 am GMT Spain consumer prices street 0.2% 9:30 am GMT UK construction output street 1.3% 8:30 am EST US producer prices street 0.8% vs previous 0.3%