A look at NZDUSD and AUDNZD after post RBNZ selloff

    The RBNZ rate decision turned out to be much more dovish than expected. Governor Adrian Orr’s statement indicated there is no rush to lift interest rate. And the central bank downgraded inflation forecast for 2019 and 2020. The downgrade of 2019 and 2020 GDP forecasts was quite significant too. RBNZ is now expected to stand pat at least until mid-2019.

    Given that, NZD tumbled broadly after the release. NZD/USD drops to as low as 0.6915 so far. 161.8% projection of 0.7436 to 0.7152 from 0.7394 at 0.6934 is firmly taken out. And our counter trend long position mentioned here will likely be stopped out with a loss. NZD/USD would now target 0.6779 low after sustaining below 0.69 handle.

    AUD/NZD surges to as high as 1.0795 and hit 38.2% retracement of 1.1289 to 1.0486 at 1.0793. Based on current momentum, rise from 1.0486 will now likely extend to 61.8% retracement at 1.0982 and above. As AUD/NZD is, after all, staying in long term range trading, strong resistance could be seen above 1.0982 to bring reversal to extend the range pattern.

    ECB’s Panetta advocates for persistence over aggressiveness in monetary policy approach

      ECB Executive Board member Fabio Panetta delivered a speech today, emphasizing the importance of “persistence” over “level” in executing the bank’s monetary policy given the present economic context.

      Panetta stated, “In the current context where policy rates are around the level necessary to deliver medium-term price stability, I will argue that monetary policy may operate not just by increasing rates but also by keeping the prevailing level of policy rates for longer. In other words, persistence matters as much as level.”

      The ECB official highlighted two primary approaches to the bank’s disinflationary monetary policy: the ‘level’ approach, which involves raising the policy rate beyond its current position, risking a potential need for faster and earlier cuts, and the ‘persistence’ approach, which advocates for maintaining the policy rates at their prevailing level for an extended duration.

      “Emphasizing persistence may be particularly valuable in the current situation,” said Panetta, “where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced, and economic activity is weak.”

      He warned against the pitfalls of an aggressive rate hike strategy, stating that it “might amplify the risk associated with overtightening, which could subsequently require rates to be cut hastily in a deteriorating economic environment.”

      By contrast, Panetta argued, the ‘persistence’ element allows for greater flexibility, granting the central bank more time to assess the effects of its past policies and fine-tune its stance as new information emerges.

      He added that by underlining the importance of this ‘breathing space’, stating, “This is crucial given that – as I said before – the transmission of our monetary policy may actually turn out to be stronger than our projections indicate.”

      Full speech of ECB Panetta here.

      US 10-yr yield breaks 2018 high, next hurdle at 3.55

        10-year yield gaps up today and hits as high as 3.356 so far, as the rout in bonds and stocks continue. TNX’s power through 3.248 resistance (2018 high) is a surprise, and significant. It’s finally breaking the lower-highs lower-lows pattern that started back in 1981.

        For now further rally is expected as long as 2.994 support holds. Next target is 161.8% projection of 0.398 to 1.765 from 1.343 at 3.554. Overbought condition (in yields, and oversold in bonds) should limited upside there and bring a pull back. That, ideally, should come as the inflation situation stabilize and improve. However, sustained break of 3.554 would be another big warning on the economic outlook ahead.

        Eurozone industrial production rose 2.5% mom in Nov, EU up 2.3% mom

          Eurozone industrial production rose 2.5% mom in November, well above expectation of 0.3% mom. Production of capital goods rose by 7.0% mom and intermediate goods by 1.5% mom, while production of durable consumer goods fell by -1.2% mom, non-durable consumer goods by -1.7% mom and energy by -3.9% mom.

          EU industrial production rose 2.3% mom. Among Member States, for which data are available, the highest increases were registered in Ireland (+52.8% mom), Greece (+6.3% mom) and Denmark (+5.3% mom). The largest decreases were observed in Portugal (-5.1% mom), Belgium (-3.5% mom) and Croatia (-2.6% mom).

          Full release here.

          Fed Powell: It’s important to earn and deserve trust that Fed is non-political

            Speaking at a town hall to a group of educators, Fed Chair Jerome Powell repeated the assessment that the US economy is “now in a good place”. While there were some “big events” like Brexit, “the system has been strong”. He also emphasized that the essence of his job is to “earn and deserve trust” of American people to Fed that, it’s “working on their behalf in a non-political way” to support the economy.

            Looking forward, Powell said income inequality and sluggish productivity are the biggest challenges of the next decade. He noted “We want prosperity to be widely shared. We need policies to make that happen.” And, “There are policies that we need to do that everyone should be able to agree on that will change mobility, improve people’s chances and enable people to better take part in the workforce of the future.”

            Separately, Fed Governor Randal Quarles warned that “right now China is a downdraft as we think about what the potential impact for that is on our economy.” Though, the U.S. outlook “is still very solid” given the labor market in particular.

            Japan PMI manufacturing finalized at 52.5, potential escalations in trade conflict weigh on sentiment

              Japan PMI manufacturing was finalized at 52.5 in August, unrevised, up from July’s 52.3. Markit noted in the released that “production rises amid faster new order growth”, “export orders fall for second time in three months”, and “geopolitical risks weigh on business sentiment”.

              Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

              “Japan’s goods-producing sector continued to record growth at the midway point in Q3, extending the current stretch of expansion to two years – the longest since the global financial crisis. Survey data signalled a moderate improvement in the health of the sector, supported by an accelerated influx of new orders.

              “That said, survey data indicated the upturn in demand was domestic-led, with export sales falling over the month. Potential escalations in trade conflict also contributed to a softening of business confidence.

              “Overall sector growth remained relatively weak compared to Q1 and Q2 averages. Sub-index data continues to point to delayed input delivery times. Meanwhile, the non-replacement of retiring staff contributed to a further slowing of job creation. With this in mind, production line capabilities could be restrained over the coming months if these trends continue, irrespective of demand pressures.”

              Full release here.

              Gold falls below 2000 as expectations of anther Fed hike firm up

                Gold dipped below 2000 as near-term pullback extended into Asian session, with many markets still on holiday. Shift appears to be driven by growing market conviction that Fed will implement another 25bps hike in May, as fed fund futures now indicate a 66% probability. This sentiment follows last week’s robust US non-farm payroll report. However, expectations could still change after release of March CPI data and FOMC minutes on Wednesday.

                Technically, a short-term top for Gold may have formed at 2032.05, evidenced by a bearish divergence in 4-hour MACD. Rally from 1084.48 might have completed a five-wave sequence and stalled just ahead of key resistance zone between 2070.06 and 2074.84 record high.

                Considering this, a deeper pullback is now anticipated. Crucial near-term support level can be found at 38.2% retracement of 1804.48 to 2032.05 at 1945.11 which is in proximity to 1949.55 support level. As long as this support zone holds, current price action from 2032.05 should be regarded as a brief corrective phase, and a rally to new record highs is expected sooner rather than later.

                However, sustained break of 1945.11/1949.55 support zone could signal a deeper fall in underway, possibly extending the long-term consolidation pattern from 2074.84 with another downward leg. In this scenario, gold prices could decline to 61.8% retracement of 1804.48 to 2032.05 at 1894.41 or even further towards 1084.48.

                DOW could have finished corrective rebound after rejection by 55 day EMA

                  DOW gapped down yesterday and eventually closed down -631.56 pts, or -2.67%, at 23018.88. The development raises the chance that corrective rebound from 18213.65 has completed after rejection by 55 day EMA. Immediate focus is back on 22595.06 resistance turned support. Break will add more credence to this case and target next support level at 20735.02.

                  In case of another rise, it now looks like upside would be limited by 61.8% retracement of 29568.57 to 18213.65 at 25230.99.

                  Japan-US trade talks to start next week for exchanging views

                    Japan Economy Minister Toshimitsu Motegi announced today that the first round of Japan-US trade talks will start next week on April 15-16 in Washington. He said he’d intend to exchange view frankly with US Trade Representative Robert Lighthizer. It’s believed that a core topic is Japan’s near USD 70B trade surplus, with nearly two-thirds from auto exports.

                    Finance Minister Taro Aso reiterated Japan’s intention to “further expand trade and investment between” between the two countries, in a “mutually beneficial manner”. He also pointed to the joint statement made last September. However, Japan has been very clear on its intention to defend the multilateral trade pact TPP that it leads, and US quitted under Trump. Hence, no matter what Japan is going to offer to the US, they won’t be something better than what’s offered to TPP partners.Ja

                    SNB Jordan: Swiss can withstand franc being stronger in nominal terms

                      SNB Chairman Thomas Jordan said two reasons have spoken against a rise in interest rate in reaction to inflation. “First, inflationary pressure is moderate here in Switzerland. Second, inflation is likely to return to the range compatible with price stability in the foreseeable future,” he said.

                      SNB forecasts inflation to average 2.1% this year before declining in 2023 and 2024. “The monetary conditions are therefore appropriate at present,” Jordan said. “However, should there be signs of a strengthening and spread in inflationary pressure, we will not hesitate to take the necessary measures.”

                      On Swiss Franc exchange rate, he said, it there had been “hardly any change in the real exchange rate” over the past few quarters. “We do not react mechanically to every instance of upward pressure,” he added. “If you have followed the Swiss franc closely over the past months, you will know that it has gradually appreciated and has at times even fallen below parity to the euro.”

                      Also, SNB had “quite deliberately” allowed appreciation of the Franc. “This means that our economy can withstand the franc being stronger in nominal terms,” Jordan said. “The higher prices abroad and the nominally stronger Swiss franc roughly balance one another out.”

                      Fed Kaplan: Resurgence in coronavirus muted economy recovery

                        Dallas Fed President Robert Kaplan said the resurgence in coronavirus has “muted the recovery” of the economy. While unemployment rate could fall to 9% or below by year end, “it requires adherence to protocols particularly wearing masks…If we don’t follow that, while people may feel freer, the economy will grow slower.”

                        Boston Fed President Eric Rosengren also warned, “limited or inconsistent efforts by states to control the virus based on public health guidance are not only placing citizens at unnecessary risk of severe illness and possible death – but are also likely to prolong the economic downturn.”

                        Eurozone CPI accelerated to 1.3%, core CPI unchanged at 1.3%

                          Eurozone CPI accelerated to 1.3% yoy in December, up from 1.0% yoy, matched expectations. CPI core was unchanged at 1.3% yoy, also matched expectations. Looking at some details, food, alcohol & tobacco is expected to have the highest annual rate in December (2.0%, compared with 1.9% in November), followed by services (1.8%, compared with 1.9% in November), non-energy industrial goods (0.4%, stable compared with November) and energy (0.2%, compared with -3.2% in November).

                          Full release here.

                          Fed officials expressed concerns over persisting trade tensions

                            Some Fed officials expressed their concerns over trade tensions and the impact on confidence and the economy at a Dallas Fed conference yesterday.

                            Dallas Fed President Robert Kaplan said “I’m watching very carefully how these trade tensions unfold because I have a concern.. whether that could cause some deceleration in the rate of growth.” And, “new development over the last month has been increased trade tensions and more business uncertainty, and it’s going to take a little while to sort out how that might unfold, or how long that might last.”

                            San Francisco Fed President Mary Daly said for now “the data is good, but the mood is teetering”. The economy’s momentum would be an upside risk to growth ” if we get a relaxation or a reduction in the uncertainty”. However, she warned that if uncertainties persist, “that’s a downside to the economy, because the uncertainty has real effects, but it also has effects on confidence, and that confidence feeds back into investment.”

                            Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael Bostic also warned that uncertainties around trade could hurt growth.


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                            Australia NAB Business Confidence rose to 14 in Q4, strong rebound in conditions

                              Australia NAB Business Confidence rose to 14 in Q4, up from -8. Current Business Conditions rose to 9, up from -5. Next 3 months Business Conditions rose to 19, up from -3. Next 12 months Business Conditions rose from 0 to 24. Capex plans rose from 13 to 31. Looking at some more details, trading condition rose from 1 to 16. Profitability condition rose form -1 to 14. Employment condition rose from -14. to -1.

                              According to Alan Oster, NAB Group Chief Economist “like many other indicators the survey shows that the economy continued to rebound strongly late in Q4. Optimism in the business sector continued to strengthen as the impacts of severe lockdowns faded”.

                              “What is even more encouraging is the fact that businesses have seen a strong rebound in actual conditions – particularly in trading conditions and profitability. This likely reflects the huge support provided to the economy by policy makers” said Oster.

                              Full release here.

                              RBA SoMP: Interest rates have been lowered as far as it makes sense

                                In the Statement on Monetary Policy, RBA noted that ” despite the somewhat better recent outcomes in Australia, the recovery was expected to be extended and bumpy”. Hence, “to further support the recovery and complement the significant support coming from fiscal policy, the board therefore decided to introduce a further package of measures.”.

                                The measures announced on Tuesday included reduction in cash rate target and 3-year AGS yield target to 0.10%. Bedsides, measures include purchases of AUD 100B of government bonds of maturities from 5 to 10 years for the next 6 months.

                                On interest rate, RBA said “interest rates have been lowered as far as it makes sense to do so in the current environment… The board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely.”

                                “At its future meetings, the board will be closely monitoring the impact of bond purchases on the economy and on market functioning, as well as the evolving recovery from the pandemic, including the outlook for jobs and inflation,” the statement noted.

                                In the new economic projections, RBA expected a shallower GDP contraction of -4% in the year ended 2020. But 2021 GDP rebound was kept unchanged at 5%. Unemployment rate would peak lower at 8% this year (versus 10%) and drop back to 6.5% by the end of 2021 (versus 6.5%). 2020 inflation was revised down to 0.50% then climb back to 1.0% in December 2021 (unchanged).

                                Full SoMP here.

                                GBP/CHF breaks through 1.2118, ready to resume rise from 1.1102

                                  GBP/CHF rides on broad based rally in Sterling this week and breaks through 1.2118 resistance. The development suggests resumption of the rise from 1.1683. Further rally is expected as long as 1.2054 support holds, for 1.2203/59 resistance zone. Decisive break there will resume whole rebound from 1.1102 to 61.8, projection of 1.1102 to 1.2259 from 1.1683 at 1.2398.

                                  If happens, that would be a bullish medium term development too, as GBP/CHF could then sustain above 55 week EMA.


                                  Japan unemployment rate rose to 3% in Aug, highest since 2017

                                    Japan unemployment rate rose to 3.0% in August, up from 2.9%, matched expectations. That the highest level since 3.1% in May 2017. Jobs-to-applicants ratio fell to 1.04, down from 1.08, hitting the lowest level since January 2014.

                                    The unemployment remained relatively low by global standard. Yet, there are concerns of further slowdown in recovery in the job markets, and unemployment rate could rise further. While worsening conditions call for more government support, Finance Minister Taro Aso insisted that he’s not considering a third extra budget at present, as funds in the second package wasn’t used up yet.

                                    Japan PM Abe would like BoJ to end ultra-loose policy in his next term

                                      Japan Prime Minister Shinzo Abe said BoJ’s ultra loose monetary policy should not last “forever”. Now, he said that “wages are finally picking up … We’re starting to see consumption and capital expenditure boost growth.” And he’d like to end the ultra-loose policy “during my next term”.

                                      But “when to modify the easy policy is up to (BOJ Governor Haruhiko) Kuroda. I’ve left that decision to him.” He added that “the BOJ’s price target is one measurement in guiding policy but the real goal is to boost growth and employment.” “We’ve seen a significant improvement in job growth.”

                                      US goods and services trade services widened to USD 89.7B

                                        US exports of goods and services dropped USD 3.9B to USD 224.4B in January. Imports rose USD 3.8B to USD 314.1B. Trade deficit widened to USD 89.7B, versus expectation of USD 85.7B.

                                        The January increase in the goods and services deficit reflected an increase in the goods deficit of USD 7.1B to USD 108.9B and a decrease in the services surplus of USD 0.6B to USD 19.2B.

                                        Year-over-year, the goods and services deficit increased USD 24.6 B, or 37.7%, from January 2021. Exports increased USD 29.9 B or 15.4%. Imports increased USD 54.4B or 21.0 %.

                                        Full release here.

                                        US initial jobless claims dropped to 192k, better than expectations

                                          US initial jobless claims dropped -3k to 192k in the week ending February 18, better than expectation of 200k. Four-week moving average of initial claims rose 1.5k to 191k.

                                          Continuing claims dropped -37k to 1654k in the week ending February 11. Four-week moving average of continuing claims dropped -3k to 1669k.

                                          Full release here.