FX Commentary – 29th February, 2012
A primary directive overnight remained the European Central Bank’s long-term refinancing operation (LTRO) – due Wednesday. Risk currencies remain steadfast leading up to the operation which is expected to see around EUR500 billion of cheap loans blanketed across the European banking system. Like the first 3yr Tender late last year, little is known of what sort of participation we could expect from Europe’s financial institutions leaving the opportunity for the ‘surprise factor’ to materially shift markets upon the release. One would expect an on-target number to have little effect while any significant deviation to the upside likely to help risk sentiment, although it should be noted an extremely high take-up of the ECB loans may also serve to highlight just how reliant banks are on ECB funding.
In economic news preliminary estimates for German consumer prices showed inflation rose at an annual rate of 2.3 percent in February – slightly above the previous and expected growth of 2.1 percent. The Euro succumbed to moderate selling pressure before but soon regained composure above the $US1.34-handle. News of Ireland’s intention to put the EU fiscal compact to a referendum applied the pressure of the Euro but weakness was relatively short-lived with the EURUSD pair rising to current levels and intra-day highs of 1.3470. As broadly anticipated, Greek debt was downgraded to ‘selective default’ status by ratings agency Standard and Poor’s in turn forcing the hand of the European Central Bank which suspended the use of Greek debt as collateral on loans.
Across the Atlantic U.S durable goods surprised to the downside to record a 4 percent fall in January against predictions of a more moderate 1 percent contraction. A slight concession to the drop in durable goods orders was strength in the latest consumer confidence reading with the conference board release showing confidence rose to yearly highs of 70.8 in February from a previous index level of 63.
After falling to lows of $US1.065 levels on Monday, the Aussie dollar remained largely buoyant overnight with a leg-down early in U.S trade contained at around the $US1.073 levels. Likes its risk currency counterparts, the Aussie dollar is very much at the mercy of the results of the ECB tender which appears to be carrying the load with respect to the moderate risk-on behaviour seen across the risk spectrum. The day ahead will see the focus shift to the release of local retail sales data which is expected to show sales grow a seasonally adjusted 0.3 percent in January after a contraction of 0.1 percent in December. True to form, any significant deviation from estimates should shift the local unit in unison.
Traditional store sales are increasingly losing business to emergence of online stores as shown in yesterday’s NAB online retail sales index. While traditional store sales grew 2.5 percent in 2011, the index revealed online sales recorded 29 percent growth in 2011 alone. Online purchases are said to account for around 5 percent of total retail sales in Australia. With the Australian dollar near to historical highs, the implication here is of course a general propensity to purchase abroad.
Also on the docket today is private sector credit/capital expenditure, contraction work done, company operating profits due for release at 1130 AEDT with the HIA new homes sales due at 1100 AEDT. At the time of writing the Australian dollar is buying $US1.0760