1. Art and Diseño

Daily Currency Update - 4 February 2015
DAILY CURRENCY UPDATE
4 February 2015
MARKET SUMMARY
The RBA board cuts its cash rate yesterday by 25 bps, taking it to a new generational
low of 2.25%. The tone of the Statement is more dovish than expected with concern
for underlying growth in domestic demand. The impact of the RBA rate cut is eclipsed
by a broad USD recovery overnight. Markets strike a more upbeat tone on the back
of a further rise in oil prices and after Greece’s Syriza government drops its calls for a
write-off of Greece’s foreign debt, proposing a debt swap plan instead.
The market reaction to the proposal is positive, with Greek 10-year bond yields falling
close to 140bps (to 9.26%). The boost to risk appetite sees US Treasuries sell off
across the curve, while core European sovereign bond yields are also higher. Equity
indices have another lift driven by the change in Greece’s stance and the rebound in
energy stocks. The Euro Stoxx 50 index moves up 1.3%, while in the US, the S&P 500
and the Dow rise 1.4% and 1.8% respectively. NZD is buoyed by a solid GDT auction
and fairly decent unemployment numbers.
Energy markets are stronger, with oil leading the gains. WTI jumped over 6% as
sentiment across the sector improved. A steady stream of news regarding falling
capital expenditure from the industry on both new and existing projects and a drop in
US oil rigs in operation appears to be the spark. A weaker USD also supports the
moves. However, while sentiment appears to have shifted, volatility remains high.
Price Action
1 Year Forward
Spot
1M High
1M Low
EUR/USD
1.1469
1.2252
1.1098
USD/JPY
117.49
120.74
115.86
GBP/USD
1.5160
1.5620
1.4952
USD/CHF
0.9247
1.0240
0.7406
USD/CAD
1.2428
1.2799
1.1565
AUD/USD
0.7782
0.8295
0.7626
Onshore
Offshore
AUD/JPY
91.43
98.42
89.38
NZD/USD
0.7355
0.7890
0.7177
USD/SGD
1.3458
1.3569
1.3201
USD/TWD
31.60
32.04
31.17
31.20
31.24
USD/KRW
1098
1112
1072
1104
1102
USD/CNY
6.2582
6.2604
6.1883
6.4558
6.4798
USD/INR
61.68
63.79
61.30
66.02
65.06
USD/IDR
12657
12773
12378
13485
13420
Base metals are higher, with copper experiencing strong buying as it benefits from
the improving sentiment towards commodity markets. The market is also supported
USD/PHP
44.14
45.11
44.04
44.60
44.36
by the rising prospect for monetary easing in China after the weak economic data
Source: Bloomberg
released this week. Despite the weaker USD, gold fails to move higher, with the
positive sentiment in commodities muting the recent safe haven buying demand. Bulk
commodity markets are higher, also benefiting from the shift in flows back into the commodity complex. The market is supported by data which shows a slight fall in
exports from Australia and Brazil.
USD & JPY
USD: Beaten On All Ends
USD/JPY High Low Chart
The USD declined broadly despite firmer US yields.
117.49
The main exception to general bias was USDJPY, which continues to consolidate ahead of the 117.80 resistance area.
US factory orders and NY ISM both disappointed. US factory orders decreased by 3.4% MoM in December, worse than the
115.86
120.74
forecasted 2.4% contraction.
Details are down across the board. This follows weak December durable and capital goods released earlier and adds to recent run of weak data out of the US.
Stabilizing oil prices also led to USD selling against G10 commodity and EM currencies.
Flow-wise, the leveraged community was very active fading these moves on our platforms. In G10, CitiFX Flows showed a net USD long against G10’s top performers NOK, EUR, SEK, NZD, and GBP.
Ahead, the market will see ADP, additional manufacturing gauges and trade balance data ahead of the all-important NFP.
JPY
USDJPY has officially entered the “conundrum” zone with a strict refusal to diverge from this increasingly messy 117.25-117.75 zone regardless of what is going on in
FI/Equities/Commodities and risk in general.
“There is little positioning in USDJPY,” says CitiFX Strategist Richard Cochinos. “But as attention turns to Friday's NFP, may be a favourite for those expecting higher
yields and strong print.”
In local news, Nikkei news reports that Yutaka Harada is to be proposed for the BoJ policy board, in place of Ryuzo Miyao whose term expires on March 25, 2015.
According to the WSJ, the nomination will be submitted to parliament on Wednesday, kicking off a week’s long process to gain approval from both the upper and lower
chambers of the Diet.
What happened in the past 24 hours
US
US
Indicator
Actual
Citi
ISM New York, Jan
Factory Orders, Dec, %
44.5
-3.4
--3.3
Consensus
Prior
--2.4
70.8
-1.7
What’s happening in the next 24 hours
US
Indicator
Citi
Real GDP
3
Consensus
Prior
3.1
5
EUR, GBP, CHF
EUR: Greek Proposal Falls On Deaf Ears
A position squeeze hit global FX markets on Tuesday, leading EURUSD back above 1.1500.
Eurozone inflationary data continued to hint at deflation risks. PPI dropped further to -2.7% YoY in December, a fresh 5y
low and weaker than the forecasted -2.5%.
Greece’s Syriza government dropped its calls for a write-off of Greece’s foreign debt, proposing a debt swap plan instead.
Under the proposal outlined by Yanis Varoufakis, Greece’s Finance Minister, the outstanding debt would be swapped for
two types of bonds.
The first type would replace European rescue loans and be tied to nominal economic growth, while the second would be a
‘perpetual bond’ that would replace Greek bonds owned by the European Central Bank.
“The European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving
Athens with no source of outside funding when its international bailout expires at the end of the month,” FT reports.
Greece’s finance minister apparently proposed that Greece raise EUR10bn via short-term Treasury bills (up to
3months) while broader negotiations continued.
“But the ECB is unwilling to approve the debt sale,” says sources. “…it will play hardball.”
EUR/USD High Low Chart
1.1469
1.1098
1.2252
GBP/USD High Low Chart
1.516
1.562
1.4952
USD/CHF High Low Chart
0.9247
0.7406
1.024
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Daily Currency Update - 4 February 2015
GBP: Cable Continues Range Trading
GBP was a bit more responsible to firm PMI data. Markit/CIPS UK construction PMI picked up from December’s 17m low to reach 59.7 in January, better than the
forecasted 57.0.
New business levels rose at an accelerated pace but job creation eased to its weakest for 13m.
Thanks to this and broader USD sentiment, cable has rallied from 1.5000 towards 1.5200.
What happened in the past 24 hours
Eurozone
Switzerland
Indicator
Actual
Citi
PPI YoY, Dec, %
Trade Balance, Dec
-2.7
1.52B
---
Consensus
Prior
-2.5
2.10B
-1.6
3.80B
What’s happening in the next 24 hours
Eurozone
Eurozone
Indicator
Citi
Services PMI, Final
Unemployment Rate
52.3
11.4
Consensus
Prior
52.3
11.5
51.6
11.5
AUD, NZD, CAD
AUD: Gone Is The Period Of Stability
AUD/USD High Low Chart
RBA cuts the cash rate by 25bp to 2.25%, the first cut since August 2013, accompanied by a dovish statement. Key
highlights:
- AUD still above most estimates of fundamental value, lower AUD needed to achieve balanced growth.
- Rate cut to foster sustainable growth, as unemployment rate will peak a little higher and overall domestic demand
growth is quite weak (very dovish).
- Sees domestic economy operating with spare capacity for some time yet.
- Lower energy prices to temporarily lower CPI while terms of trade to likely reduce income growth as output growth to
remain below trend somewhat longer.
- Gone is the “period of stability” when referring to rates .
0.7783
0.7626
0.8295
NZD/USD High Low Chart
0.7356
0.7177
0.789
The key reason behind the rate cut appears to be the Bank pushing out the timing of its forecast of the return to trend or
USD/CAD High Low Chart
above economic growth.
In particular, the statement highlights a longer period of below trend growth that appears to reflect lower income growth.
1.2428
Hence, the RBA’s concern that AUD still “remains above most estimates of its fundamental value”.
1.1565
1.2799
Citi’s Australian economists think the statement doesn’t convey a sense of urgency. They don’t see March as a live
meeting, and will update their RBA call following the release of MPC statement on Friday which may provide more color on
the Bank’s forward thinking.
CitiFX G10 strategist Todd Elmer says: “The drop in AUD will have sticking power and the selling will continue in the London and New York session. Our flows data shows
that leveraged investors were initially buyers into recent AUD weakness, flipping to selling only over the past couple of weeks. With many investors caught behind the
curve, they may be forced to chase.”
AUDUSD recovered all of its RBA-inspired losses to the 0.7800 figure after briefly testing 0.7630 in early European trading.
The rest of the week brings retail sales and the RBA statement for AUD, though NFP will have the final say.
CitiFX Technicals
AUDUSD - Large Gap Ahead
The break through levels between 0.7990 and 0.8067 on a
weekly and monthly close basis confirmed the downtrend
Supports (not strong) are being tested today at 0.7675
Major supports below there are in the 0.7270-0.73 area
including the trend support from 2001 on the log scale chart.
CAD
Canadian PPI dropped further to -1.6% MoM in December versus the forecasted -0.6%.
Oil prices are back in focus once again as BP announced plans to cut capital expenditures by 13% to $20bn in 2015 – adding to the slew of cuts that we have seen from
the oil players.
Given that we have had close to no pullback all of Jan in USDCAD, positioning in the pair appears relatively stretched and we could well see a proper unwind of the trade
as leveraged and real money take chips off the table.
NZD: Kiwi Finds Its Wings On Unemployment Data & Better Milk Auction
The New Zealand unemployment rate unexpectedly rose from 5.4% to 5.7%, while 5.3% was expected. However, the underlying details are actually strong.
The unemployment rate change was driven by a rising participation rate - from 69.0% to 69.7%.
Net employment rose by +1.2%QoQ, while average hourly earnings beat consensus by one-tenth (at +0.4%QoQ).
NZDUSD tried to rally towards 0.7400 on first read of the data but is now coming off towards 0.7365.
The overall GDT price index rose by +9.4% (+1.0% previously), leaving average prices at 6m high.
Whole milk powder came in at +19.2% (+3.8% previously).
A speech from Governor Wheeler provides the next round of event risk.
What happened in the past 24 hours
Australia
New Zealand
Indicator
Actual
Citi
Trade Balance, Dec, Million
Unemployment Rate, Q4, %
-436
5.7
-850
5.2
Consensus
Prior
-850
5.3
-925
5.4
What’s happening in the next 24 hours
Canada
New Zealand
Indicator
Citi
Ivey PMI
Unemployment rate, %
-5.2
Consensus
53.7
5.3
Prior
55.4
5.4
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Daily Currency Update - 4 February 2015
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