A$ suffers at the hands of the Euro
One of the progressive themes in recent sessions has been that of Aussie dollar weakness. The last four trading days has seen the local unit slip from highs just shy of 106-figure and remains under moderate pressure around the 104 US cent levels. A fall in the benchmark AUD-USD rate coincides with notable weakness against the Euro over the same period – with residual weakness we believe a primary influence. With Europe seemingly on the mend, the great safe-haven unwind can also impact those currencies not typically of ‘safe-haven’ status for speculative purposes. In short, the Aussie dollar is a currency tied to a fundamentally sound economy comparatively speaking, in turn a de-facto safety play. We’ve seen the local unit benefit from these safe haven qualities when the going got tough, and a tentative return of confidence in the Euro region has – to a degree – helped unwind a bid for safety for which the Aussie was a beneficiary.
This is of course only one part to the ‘Aussie’ equation, with US policy, local and Chinese economic prospects also a key determinant.
Locally we have a reasonably light docket this week with new home sales, private sector credit and producer price data a few of the mid-tier releases. For what we lack in terms of major market moving themes will be more than made up for from a U.S perspective. The greenback has had a solid run in recent times, and this week’s FOMC policy decision we see the US dollar get a second bite of the cherry. Markets will no doubt be watching for any suggestion the Fed’s vast stimulus measures could be unwound earlier than anticipated, therefore primed for further gains should Bernanke and Co err to a more hawkish tone.
In particular markets will be watching for any elaboration of the December meeting minutes which noted “several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013.” It’s worth noting however, this statement was made in the same meeting the board decided to unleash a new round of quantitative easing, and adopt new explicit unemployment and inflation targets. A new year brings new board members who we anticipate may err on the dovish side of neutral, suggesting this statement may not reflect the views of the current line-up. Nevertheless, the risk of a US dollar reversal on this weeks FOMC decision is present with Friday’s NFP’s an equally important economic barometer, therefore a key directive for the greenback.
Markets will also be watching closely the release of official Chinese manufacturing PMI and the HSBC equivalent on Friday. Both are expected to edge further above the ‘50’ level which separates expansion and contraction.
At the time of writing the Australian dollar is buying 104.1 US cents.
NFP’s headline a big week of U.S data
The data flow continued to outpace expectations overnight with the closely watched durable goods orders rising 4.6 percent in December from a previous 0.7 percent. Manufacturing in the Dallas region also rose beyond expectations with the Fed index falling to 5.5 in January from 6.8 percent, but greater than the index level of 3.0 estimated. The exception was a surprise drop in pending home sales which recorded a seasonally adjusted 4.3 percent drop in December.
Despite the mostly encouraging data pulse in recent times, we’ve seen little movement on the stock front, with investors seemingly holding back ahead of key releases later this week, particular the January jobs report.
Some of the macro highlights to come include consumer confidence data (Tuesday), 4Q GDP and FOMC policy decision (Wednesday), with the much anticipated non-farm payrolls, University of Michigan consumer confidence and ISM manufacturing data to wrap up the week on Friday.