Key Overnight Developments

  • NZ Dollar Slumps as PM Talks Down RBNZ Rate Hike Outlook
  • China’s Money-Market Rate Spikes Higher, Weighs on US Dollar

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3420

1.3547

GBPUSD

1.5828

1.5999

 

The Euro and the British Pound added 0.4 and 0.2 percent respectively against the US Dollar as the greenback came under broad-based selling pressure in overnight trade (see below). We remain short EURUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:30

Business NZ PMI (DEC)

53.1

-

52.7

NZD

21:45

Retail Sales (MoM) (NOV)

1.5%

1.1%

-2.4% (R+)

NZD

21:45

Retail Sales Ex-Auto (MoM) (NOV)

-0.2%

0.5%

-1.6%

JPY

-

Cabinet Office Monthly Economic Report

-

-

-

AUD

0:30

Import Price Index (QoQ) (4Q)

-3.8%

-

0.8% (R+)

AUD

0:30

Export Price Index (QoQ) (4Q)

-8.1%

-

7.8%

AUD

0:30

RBA Foreign Exchange Transaction (A$) (DEC)

855M

-

342M

JPY

4:30

All Industry Activity Index (MoM) (NOV)

 -0.1%

0.2%

-0.2%

The New Zealand Dollar underperformed in overnight trade despite a pickup in manufacturing activity, sliding 0.5 percent on average against its top counterparts. The currency was pressured lower after the National Business Review newspaper cited Prime Minister John Key saying the government will step up efforts to cut spending and remove fiscal stimulus so the central bank can avoid raising interest rates too soon. Key said the nation “can’t afford to have interest rates rise andto rise rapidly.” A disappointing Retail Sales report didn’t help matters either, with core receipts unexpectedly dropping 0.2 percent in November. The Reserve Bank of New Zealand holds its regular monetary policy meeting next week, with traders pricing in no chance of a rate hike.

The US Dollar came under fire after China’s benchmark money-market ratespiked to the highest since October 2007. The jump came on the back of the latest increase in bank reserve requirements, which took effect yesterday, and points to a shortage of cash in the overnight credit markets. This hints Beijing may not press ahead with further tightening as quickly as had been supposed after GDP figures topped forecasts in the fourth quarter, an outlook that traders apparently interpreted as broadly positive for global growth, sending China’s Shanghai Composite benchmark stock index higher and weighing on the safety-linked US currency.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

7:45

French Business Confidence Indicator (JAN)

-

103

Low

EUR

7:45

French Own-Company Production Outlook (JAN)

-

8

Low

EUR

7:45

French Production Outlook Indicator (JAN)

-

10

Low

CHF

8:00

Money Supply M3 (YoY) (DEC)

-

6.4%

Low

CHF

8:00

Real Estate Index Family Homes (4Q)

-

384.3

Low

EUR

9:00

German IFO Business Climate (JAN)

109.9

109.9

Medium

EUR

9:00

German IFO Current Assessment (JAN)

113.2

112.9

Medium

EUR

9:00

German IFO Expectations (JAN)

106.5

106.9

Medium

GBP

9:30

Retail Sales (MoM) (DEC)

-0.3%

0.3%

Medium

GBP

9:30

Retail Sales (YoY) (DEC)

1.3%

1.8%

Medium

GBP

9:30

Retail Sales w/Auto Fuel (MoM) (DEC)

-0.2%

0.3%

Low

GBP

9:30

Retail Sales w/Auto Fuel (YoY) (DEC)

1.1%

1.1%

Low

Germany’s IFO Survey of business confidence is expected to show sentiment soured a bit in January after hitting a record high in the previous month, with the forward-looking Expectations gauge ticking down to 106.5. The survey has outperformed economists’ forecasts by wide margins over the past three months however, so another upside surprise this time around seems like a distinct possibility.

The ability of such an outcome to boost the Euro beyond the immediate term appears limited however, with signs of resilience in Germany serving to underscore the increasingly wide disparity between its performance and the remainder of the Euro Zone. This carries severe implications for the European Central Bank it attempts to fashion a single monetary policy to accommodate competing objectives within the currency bloc, hinting policymakers may be unable to move past hawkish rhetoric to actually raise interest rates even as inflation ticks above the 2 percent target level.

UK Retail Sales are set to decline in December, with core receipts (excluding auto fuel) down 0.3 percent from the previous month. The result may not prove especially market-moving despite amounting to the first drop in three months and falling within the critical holiday shopping period considering it was telegraphed over a week ago in an analogous survey from the British Retail Consortium. At that time, BRC Director General Stephen Robertson said “unusually early winter weather” kept shoppers away, compounding longer-term concerns about the impact of the government’s spending cuts.