Forex »

IronFX Daily Commentary | 31/03/15

Share on StockTwits
Published on

• Dollar continues to strengthen End-month and end-quarter demand pushed the dollar higher Monday. Much of the demand was apparently due to such position-squaring rather than fresh risk-taking. Fed funds rate expectations were largely unchanged and bond yields declined a modest 2 bps, so it was not due to any large change in understanding of the Fed’s view. Today being the last day of the month and quarter, we could see continued demand. The question then is, will it continue on Wednesday when April begins? I expect so. In contrast to what we’ve been seeing over the past several weeks, the recent US economic indicators have generally been good. Yesterday’s February personal income and pending home sales both beat estimates (although personal spending was below forecast), suggesting that perhaps US indicators are perhaps starting to improve (although of course one day does not make a trend). In any case, the market is likely to start looking forward to another strong US payrolls figure this Friday which, coming out on a thin holiday day, may have a greater-than-usual impact on the dollar.

• USD/JPY seasonal pattern in April Following the above discussion of seasonal patterns, I was going to write a sentence or two about how USDJPY was likely to move higher in April. Although the seasonal repatriation of Japanese funds in March ended years ago with the introduction of consolidated accounting, the outflow of funds in the new fiscal year beginning in April is still a real phenomenon. That’s because people and companies make payments to insurance and pension funds at the beginning of the new fiscal year in April and investment companies put into effect their new investment plans starting in the month. However when I looked at the seasonal pattern, I found that unfortunately, reality did not agree with theory: in fact, USDJPY has over the last decade tended to move lower in April, not higher (i.e., JPY tended to strengthen). However, the hit ratio is so evenly balanced (6 years down, 4 years up) and the range between the largest decline (-3.7%) and largest rise (+4.5%) is so large as to suggest that there is no dominant seasonal trend. In that case, I think the determining factor for JPY this year will be continued capital outflows as the Bank of Japan buys up all the Japanese Government Bonds, leaving investors to look overseas for investment opportunities.

• AUD/NZD moving towards parity AUD was the big loser overnight as investors start thinking about the possibility of AUD/NZD, already at historic lows, moving towards parity. The country’s domestic data released Monday was not that bad: HIA new home sales were up 1.1% mom in February, a slowdown from January but still rising, while private sector credit expanded at the same yoy pace as in January. However the external environment is deteriorating, and that’s what’s affecting AUD. Monday the price of iron ore fell to its lowest since May 2009. Does anyone need a reminder of just how bad the global economy was in May 2009? China will release its official March manufacturing PMI on Wednesday and the market expects another reading below 50, which would be the third in a row. With oil prices down as well, the outlook for commodity producers is not that great right now. The RBA meets on April 7th and the market is now pricing in a 79% likelihood of a cut in rates at the meeting, up from 68% a week ago. AUD seems to be the #1 currency in the firing line.

• Today’s highlights: During the European day, Eurozone’s flash CPI for March and unemployment rate for February are coming out. The turn of the German inflation rate to positive on Monday increased the likelihood that the bloc’s deflation could moderate somewhat. This could prove EUR-supportive. However, following the introduction of the quantitative easing program by the ECB, the impact of the CPI on EUR is not as great as it used to. Thus the reaction in the markets could be limited. German unemployment for March is also due out.

• In the UK, the 3rd estimate of Q4 GDP is released. The final estimate of GDP figure is expected to confirm the preliminary reading, therefore the market reaction is likely to be minimal as usual.

• In the US, we get S & P/Case-Shiller house price index for January, which is expected to have decelerated from December but still show house prices rising. Chicago purchasing managers’ index and the Conference Board consumer confidence index both for March are also to be released. These are likely to keep confidence up and the USD supported.

• From Canada, the monthly GDP for January is expected to contract a bit, a turnaround from the previous month. This is expected to cause the annual growth rate to decelerate and keep CAD under selling pressure.

• We have several Fed speakers on Tuesday’s agenda: Richmond Fed President Jeffrey Lacker, Atlanta Fed President Dennis Lockhart, Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George speak. ECB Supervisory Board Chair Daniele Nouy testifies before the European Parliament economic and monetary affairs committee.

Share on StockTwits