Data Mixed, Dollar Hangs Against Majors
Swiss National Bank Hikes Benchmark Rate By 25 BPS
Dollar - Differing economic data once again dominated the session, leaving the US dollar mixed against major counterparts. Early in the New York morning, regional manufacturing surveys in New York and Philadelphia painted a bleak picture of the current economic state. The Empire State survey posted a 1.9 reading, far below the 24.4 in the previous month and under the 16 expected by the consensus. Exacerbating the lower than expected reading in the New York report was a smaller rise of 0.2 in the Philadelphia survey. The figure was far below the consensus of an improvement to 4 and confirmed the notion that a slowdown may be in the works for the worlds largest economy. However, the notion was countered by sentiment that the recent readings were a mere pullback from the higher advances in the previous month. On the positive side, producer prices increased in the month of February, supportive of further stabilization in US short term interest rates. For the month, headline inflation on the producer side advanced by 1.3 percent with the core rising by 0.4 percent. The figures, to say the least, reversed the previous months weaker postings and furthers the notion that benchmark rates will be left alone when Federal Reserve policy makers meet next week. Although expectations continue to remain steady for no rate decision, the recent producer price data may lend slightly more hawkish shading on the subsequent comments. Incidentally, todays results place mounting focus on tomorrows consumer price index report. Both the headline and core components are expected to rise in similar fashion, helping dollar enthusiasts to end the week higher. Net foreign securities purchases were additionally optimistic, rising far above the $70 billion expected for the month. Foreign interest in stock and US treasuries helped to garner $97.4 billion in net long investments, dollar bullish. Surprisingly, the market casted aside comments made by ex-Federal Reserve Chairman Alan Greenspan. Speaking at a Futures Industry Association meeting in Florida, Greenspan warned of a negative spillover in the US economy sparked by a subprime mortgage fallout. Similar to comments made in Toronto last month the ex-Chairman continued to press on the element of disarray noting that the predicament is not a small issue. Bearish for the dollar, in theory, the comments had no real effect on afternoon trading.
Euro - Eurozone data was thin for Thursday action with only the Swiss National Bank rate decision and the release of consumer price data dictating market flow. For the month of February, European consumer inflation rose in line with estimates. Although the monthly figure reversed the decline from the month prior, the year over year figure continues to post under the benchmark target of 2 percent set by European Central Bank officials. The under consensus release will likely give further leeway to policy officials as President Trichet and Company continue to view inflationary potential in the region. Incidentally, the sentiment contradicts retail sales and consumer spending figures over the last month, both which have pared back considerably on the heels of the VAT implementation. The notion is likely to spur further speculation of rate hikes in the near term, ample support for higher euro valuations for now. Separately, the Swiss National Bank raised rates by 25 basis points in the early morning. As expected, the rate hike was voted on as policy officials cited the excellent shape of the Swiss economy and the potential for upward inflationary pressures in the short term. The sixth consecutive rise since the end of 2005, further rate hikes are now beginning to be speculated in the longer term as the central bank continues to estimate real GDP growth near 2 percent, an improvement from the beginning of the year. Subsequently, inflationary pressures are expected to rise 1.4 in the year.
British Pound - With economic data completely absent on the day, trading flow seemed to be dictated by technical support established in the overnight. Momentum from yesterdays rather optimistic data and sentiment for next weeks Bank of England meeting minutes helped to boost the pound sterling higher above the 1.9300 psychological figure. The question now remains, with the sterling rising three out of the last four sessions, will the surge continue. Although technical barriers are looking heavy, traders are turning their attention to the increasingly optimistic retail sales figures for the month, scheduled for release early next week. Should the figures run higher than the consensus, central bankers may take further rate hikes in to heavy consideration as wage pressures are surely contributing to the inflationary environment.
Japanese Yen - Japanese data didnt lend a hand to the USDJPY currency pair as machine tool orders and Tokyo condominium sales were released during the session. Machine tool orders rose in the month, higher by 16.5 percent as condominium sales declined worse than expected. The two pieces of data, incidentally, countered each other out and left traders looking ahead to tonight slate of releases. Subsequently, the market will be concentrating on the tertiary industry index for the month of January. Although not considered as pertinent as other releases, the service activity gauge is surely to show a legitimate bounce in the month lending to yen bullishness. Subsequently the positive improvement in the services sector is expected to combine with previous upticks in inflationary figures as well as retail sales in supporting further rate hikes. Markets, although not pricing in any near term rate hikes, are beginning to price one more before year end.
Commodity Bloc - As before, both Australian and New Zealand dollars advanced higher on the day as the Canadian dollar suffered under worse than expected data. Aside from manufacturing shipments in the worlds ninth largest economy declining by 2.1 percent on the month, it was crude oil that helped to place unwanted weight on the Canadian dollar. With US stockpiles better than expected and OPEC looking to keep supply stable without the use of production cuts, WTI contracts continued lower through the $58 a barrel mark. With the correlation of crude and the USDCAD currency pair still holding strong, its no wonder the Cad continued to suffer on the day. Separately, Australian employment continued to improve with a better than expected addition for the month. However, gains were mildly capped as the overall rate ticked slightly higher, giving the impression of nascent slack in the labor force.