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Dollar at 12-year high vs euro; NZD surged after RBNZ; NOK under selling pressure

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The greenback continued to gain ground against its G10 counterparts, with only NZD showing any significant strength vs USD. The worst performing major currency during yesterday’s session was euro. The shared currency breached below 1.0600 yesterday to post its lowest mark against the dollar since 2003.

The EURUSD pair continued falling during the speech of ECB President Mario Draghi, reaching 1.0500 late Wednesday. Three days after the bond-buying program started, Mario Draghi said that the monetary policy of ECB aims to stimulate the economy. Europe can deploy the monetary policy, push the inflation back at the target of 2.0% and stabilize the inflation in line with the objective. However, the market expects the inflation to remain very low, even negative during the next months, reflecting the plunged oil prices and to accelerate by 1.8% in 2017.

Euro area economy expanded 0.9% in the fourth quarter, faster growth than the revised previous GDP of 0.8%, but as Draghi said, the slowdown in growth has been reversed. In addition, Unemployment Rate in January fell to 11.2%, its lowest level since August 2012.

Not far behind, NOK was the second biggest loser against the dollar. The NOK started to depreciate against the dollar after the country’s inflation rate fell to 1.9% yoy in February, missing expectations of 2.1%. Lower fuel prices driven by low oil prices, have been the main reason behind the deceleration of Norway’s inflation as well as the recent NOK’s depreciation. Norway’s central bank in December cut its interest rates to 1.25% from 1.5%, amid lower oil prices and slower growth expectations. That rate cut will shift investor’s focus to the next Norges Bank policy meeting due on March 19. The USDNOK pair is looking bullish at the moment as is trading above the psychological level of 7.8600. It’s remarkable that for the last three weeks the USD added 7000 pips to its value against the NOK, as the pair rose for a third consecutive week after rebounding from the 7.5380 level.

On the other hand, NZD was the only gainer against the USD during yesterday’s session. The NZDUSD surged +0.45% to 0.7320 after Reserve Bank governor, Graeme Wheeler announced that the benchmark interest rate remains the same at 3.5% and probably will not rise for the next two years. However, “future interest rate adjustments, either up or down, will depend on the emerging flow of economic data”, as Wheeler said. The country’s economy is in a healthy situation and better than other countries, but the low oil prices and the global low inflation rates keep the Central Bank cautious. In response, Inflation Rate is expected to slow down around zero in the March quarter and remain low over 2015. Moreover, for the fact that 20 other countries have eased their monetary policy to stimulate their economies, he said that RBNZ already operating a stimulatory policy. NZD is “unjustifiably high and unsustainable”, thus, “a substantial downward correction in the real exchange rate was needed to put New Zealand’s external accounts on a more sustainable footing.”

Economic Indicators

For the rest of the day, we have Germany’s and France’s CPI final figures for February. German final CPI for February is expected to show the Eurozone’s largest economy is recovering after slipping a bit into deflation in January. The forecast is to come out the same as the preliminary number; 0.9%. The market also expect France to turn in inflation at 0.6% from last month’s deflation at 1.0%.

From the US, we get Retail Sales for February. Retail sales are always a useful gauge of how well the US recovery is doing, since consumer spending is such a large part of the economy. The headline figure is expected to be 0.5% mom which would be an improvement from December’s -0.8% mom. Shortly afterwards, Business Inventories for January are due to expand by 0.2% from 0.1%.

Overnight, the BoE will release its Quarterly Bulleting for Q1. The Bank of England Quarterly Bulletin contains the monetary policy report and market developments from the board of governors. Also overnight, Japan releases figures on Industrial Production and Capacity Utilization, both for January.

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