Aussie is generally higher in Asian session today on easing risk aversion and as RBA signals wait and see on wait cut. Nikkei extends this week’s rebound and is trading up 220 pts, or 1.4% at the time of writing while HK HSI is up 300 pts or 1.6%. Crude oil is also extending recovery and is back above 30 handle, comparing to last week’s low of 26.05. Meanwhile, other commodity currencies follow Aussie higher and Yen is broadly soft, following risk sentiments. Sterling is firm as markets await inflation data from UK today.
RBA minutes for February meeting noted that “recent domestic data had, on balance, been positive and that there were reasonable prospects for growth to increase gradually over the forecast period while maintaining inflation close to target”. Meanwhile, “over the period ahead, new information would enable the board to assess whether the recent improvement in labour market conditions was continuing and whether recent financial market turbulence presaged weaker global and domestic demand.” Though, the central bank also noted that “outlook for continued low inflation may provide scope for easier monetary policy, should that be appropriate to lend further support to demand.”
From New Zealand, RBNZ 2-year inflation expectations dropped to 1.6% in Q1. That’s the lowest level since Q2 of 1994 and was well below RBNZ’s 2% target. Some economists noted that low inflation expectations could start to weigh on wages and prices, which lead to further downward pressures on inflation. RBNZ governor Graeme Wheeler signed earlier this month that he’s in no rush to cut OCR. But markets are pricing in 60% chance of a rate cut by RBNZ by June of this year. Also from New Zealand, retail sales rose 1.2% qoq in Q4 versus expectation of 1.4% qoq.
Yesterday, ECB president Mario Draghi told European Parliament’s Economic and Monetary Affairs Committee that policy makers will “examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations.” And, ” in the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks.” And he emphasized that “if either of these two factors entail downward risks to price stability, we will not hesitate to act.”
Looking ahead, UK inflation data will be the main focus in European session with CPI, RPI and PPI featured. Eurozone will release German ZEW economic sentiment. From Canada, manufacturing shipments will be released. US will release Empire State Manufacturing index and NAHB housing market index.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.7099; (P) 0.7135; (R1) 0.7170; More…
AUD/USD continues today recover today but outlook remains unchanged. Corrective rebound from 0.6826 should have completed at 0.7241 already. Deeper fall should be seen for retesting 0.6826 low first. Break will resume the larger down trend. Above 0.7241 will bring another rise. We’d stay cautious on strong resistance below 0.7384 to limit upside to complete the rebound.
In the bigger picture, the down trend from 1.1079, 2011 high, is still in progress. Further fall would be seen towards 0.6008 key support level. At this point, we’d stay cautious on strong support above 0.6008 to bring medium term bottoming. However, downside acceleration could raise the chance of break of 0.6008. We’ll pay attention to the development closely. In any case, break of 0.7384 resistance is need to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish.
Economic Indicators Update
|21:45||NZD||Retail Sales Ex Inflation Q/Q Q4||1.20%||1.40%||1.60%||1.50%|
|02:00||NZD||RBNZ 2-Year Inflation Expectation Q1||1.60%||1.90%|
|09:30||GBP||CPI M/M Jan||-0.70%||0.10%|
|09:30||GBP||CPI Y/Y Jan||0.30%||0.20%|
|09:30||GBP||Core CPI Y/Y Jan||1.30%||1.40%|
|09:30||GBP||RPI M/M Jan||-0.60%||0.30%|
|09:30||GBP||RPI Y/Y Jan||1.40%||1.20%|
|09:30||GBP||PPI Input M/M Jan||-1.20%||-0.80%|
|09:30||GBP||PPI Input Y/Y Jan||-8.80%||-10.80%|
|09:30||GBP||PPI Output M/M Jan||-0.20%||-0.20%|
|09:30||GBP||PPI Output Y/Y Jan||-0.90%||-1.20%|
|09:30||GBP||PPI Output Core M/M Jan||0.10%||0.20%|
|09:30||GBP||PPI Output Core Y/Y Jan||0.10%||0.10%|
|10:00||EUR||German ZEW (Economic Sentiment) Feb||0.1||10.2|
|10:00||EUR||German ZEW (Current Situation) Feb||55.5||59.7|
|10:00||EUR||Eurozone ZEW (Economic Sentiment) Feb||10.3||22.7|
|13:30||CAD||Manufacturing Shipments M/M Dec||0.90%||1.00%|
|13:30||USD||Empire State Manufacturing Feb||-10||-19.37|
|15:00||USD||NAHB Housing Market Index Feb||60||60|
|21:00||USD||Net Long-term TIC Flows Dec||$31.4b|
This article originally appeared at Action Forex.