Daily Report: AUD and NZD Softer, Focus Turns to SNB

Commodity currencies are slightly softer today on a couple of factors. Firstly, Australia job report missed expectations and showed only 0.4k growth in February. Unemployment rate also rose slightly from downwardly revised 5.2% to 5.3%. Secondly, RBNZ was somewhat more dovish then expected and hinted that interest could peak a lower level than previously thought as the bank starts the tightening cycle later this year. Thirdly, inflation reading in China jumped to a 16 month high of 2.7% yoy in February, raising concern of more monetary tightening. Dollar and yen are slightly firmer but after all, markets remain in familiar range.

RBNZ left the OCR unchanged at 2.5% as widely expected and reiterated the comment on start to remove policy stimulus around the middle of 2010. However, RBNZ sounded a bit dovish by saying that growth is expected to be "subdued relative to previous recoveries," as "households are still cautious", "credit growth remaining subdued," and "business spending is weak." There were expectations that RBNZ would high by 25bps in June and every meeting thereafter until the end of the year. But traders scaled back bets the chance of any hike earlier than June and bet that rises after that would be gradual, with one or two hikes thereafter priced out.

Kiwi's weakness is clearly felt in AUD/NZD. The cross broke 2008 high of 1.2966 last week and reached as high as 1.3120. Subsequent retreat has likely completed yesterday at 1.2962 and the rally is set to resume for 100% projection of 100% projection of 1.1925 to 1.2836 from 1.2408 at 1.3319.

Next focus will be SNB announcement. Despite recent positive economic data, the SNB will continue to leave the target range for 3-month LIBOR at 0-0.75, targeting to keep the rate at 0.25%, in March. The Monetary Policy Announcement will likely turn more hawkish with upgrades in both growth and inflation outlooks. Although the SNB reiterated it will 'act decisively to prevent any excessive appreciation of the Swiss franc against the euro', it's apparent that the central bank has done little to intervene appreciation of Swiss franc in recent month. Weakness in the euro as a result sovereign concerns in Greece and peripheral European countries should make the SNB reluctant to take away the pledge to intervene.

On the data front, Japan Q4 GDP was revised down to 0.9% qoq, 3.8% yoy. Australia job market grew by 0.4k in February only while unemployment rate rose slightly to 5.3% in February. Canadian capacity utilization, new housing price index, trade balance and US trade balance, jobless claims will be released later today.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.4603; (P) 1.4616; (R1) 1.4623; More

EUR/CHF seems to be building more downside momentum for the moment and intraday bias remains cautiously on the downside. We'd expect the cross to crawl towards 1.4557 support next. On the upside above 1.4635 minor support will turn intraday bias neutral again. Further break of 1.4697 will argue that stronger rally might be seen. After all, even in case of strong rebound, we'd expect strong resistance ahead of 1.5 psychological level to limit any rebound attempt.

In the bigger picture, with EUR/CHF still staying well below 55 weeks EMA, fall from 1.5880 is likely still in progress. The test of 1.4577 key support is already done but near term downside should be limited on risk of further intervention from SNB. We'd expect some choppy sideway consolidations below 1.5 psychological level first before down trend finally resume for a test of 1.4315 low. Sustained trading above 1.5 psychological level is needed to invalidate this bearish view.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box