- USD stronger against most majors after stronger than expected employment data.
- JPY at a 3-½ year low with new data showing a challenged environment
- RMB weaker against the USD, mixed economic data in China.
USD – The USD strengthened against most major currencies after stronger than expected US employment growth in February. US employers added 236,000 workers to their payrolls in February, greatly surpassing market expectations for 160,000 jobs. The US unemployment rate fell 7.7%, the lowest since December 2008, a sign that the overall economy is gaining traction and adding fuel to a rally in US stocks that had already propelled the Dow to record highs. While the latest employment data surpassed expectations, the US unemployment rate is still fairly high. The US central bank has agreed to buy $85B in bonds per month, and would keep its asset purchases until they see a substantial improvement in the labor market outlook. The US Retail sales data is due on Wednesday, Producer Price Index on Thursday, and the CPI data on Friday. Market participants should expect the USD to be well-supported with the reinforcement of upcoming economic data and commentary from the Fed due this week.
EUR The euro remains near recent lows vs. the dollar as growth concerns in Europe weigh on the currency. The single currency is testing support just below $1.30, hitting lows overnight at $1.2978. Although the ECB left interest rates unchanged last week, sentiments are increasingly pointing towards a cut as the central bank’s next move. Italian GDP contracted 0.9% in the final quarter of 2012, culminating in a negative 2.8% contraction for the year. As a whole, the euro zone contracted -0.6% in Q4 with only Germany registering growth among the region’s major economies. Ratings agency Fitch also downgraded Italy one notch last week to BBB-plus, citing the gloomy outlook for the economy, and placed a negative ratings outlook for the country which could lead to further downgrades. The ongoing political uncertainty in Italy may also place further pressure on the euro after Italian officials suggested the country may miss an end-of-April deadline to present a stability program to European authorities due to the political stalemate.
GBP – The GBP weakened against the USD, hitting its 2½ year low as hedge funds and long-term investors sold the currency. Investors see the pound as susceptible to more weakness given contrasting outlooks for the British and US economies. Britain is set to enter its third recession in four years; the BoE is likely to print more money to support the economy. UK industrial and manufacturing data due on Tuesday is expected to show little or no monthly growth. Market participants believe that if the manufacturing PMIs come in weaker than expected, the sterling could be put under further pressure. Expect the sterling to continue to be the underperformer within the G10 in the 1.47 levels in the next week.
JPY – The JPY traded at almost the weakest since August 2009 against the USD as signs the American economy is gaining momentum boosted demand for the U.S currency. The data released today in Japan which showed that machinery orders plunged in January by a huge 13.1% from the previous month, highlights a challenged environment for business investment. BoJ nominee Kuroda maintained a dovish bias in his appearance before lawmakers in Japan’s upper house. He hinted at the possibility of pulling forward the start date for open-ended asset purchases, currently set to begin in 2014, while also underscoring a preference for long-term bond purchases. Kuroda stated that there is no need to purchase foreign bonds, and viewed two years as an appropriate period for achieving the 2.0% inflation target. The employment report and hope ahead of the BOJ meeting on April 4th should be enough to keep USD/JPY well supported for now.
Commodity currencies – The CAD strengthened against the USD, after the positive North American jobs report last week. With no domestic data in the pipeline and the current March school break, movement in the CAD may be subdued this week. Market participants believe that the direction of the CAD this week will be driven by US economic data and will likely stay between the 1.0340 and 1.0230 levels. The AUD and NZD both weakened against the greenback after the release of strong US labor data. Support for the AUD should remain at the 1.0200 level, as market participants await employment data due on Wednesday. The key event for the NZD will be the Reserve Bank of New Zealand’s monetary policy statement on Thursday, where rates are expected to stay at a record low of 2.5%. The NZD is expected to see support around the 200-day moving average at 0.8180 to 0.8250.
RMB – The Chinese yuan weakened against the USD after strong U.S. jobs growth figures released last Friday and after the release of mixed economic data in China. The onshore CNY came in at 6.2181 per dollar, down 0.05% from Friday's close with PBOC setting its fixing rate at 6.2769, while the offshore spot yuan came in at 6.2065. Over the weekend data released in China highlighting Industrial production figures grew more slowly than expected, while inflation figures beat analysts’ forecasts. Data from China's National Bureau of Statistics showed annual industrial production growth in January and February combined at 9.9% (its lowest level since October 2012), while the consumer price index rose 3.2% in February from a year ago, versus expectations of a 3.0% rise. Amid continued fears over currency wars in Asia, Deputy PBOC governor Yi Gang said last week that China stands ready to respond if Japan and others launch competitive devaluations. Look for PBOC to intervene as necessary, but keep monetary policy relatively accommodative in the coming quarters to support further economic growth.
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