Dollar and Yen in consolidations, Australian business

Currency markets today are trading sideways within a narrow range in Asia. The high point of the yen selloff should have passed in the short term as the yen pairs moved into consolidation mode. But the Japanese currency remains the week’s big loser, followed by the euro, then the Swiss franc and the dollar. The Australian dollar is still the strongest, along with other commodity currencies and the British pound.

Technically, gold’s breakout of the 4 hour 55 EMA is a short-term positive sign. Yet, it has yet to break the minor resistance at 1949.55 to retake the rebound from 1894.77. In this case, gold should be targeting a 61.8% retracement from 2070.06 to 1894.77 at 2003.09, which is close to the 2000 handle. Such a development, if it occurs, could accompanied by a resumption of the EUR/USD rebound from 1.0805.

In Asia, at the time of writing, the Nikkei is down -0.25%. Hong Kong’s HSI index is up 0.19%. China Shanghai SSE is down -0.54%. The Singapore Strait is up 0.80%. Japan’s 10-year JGB yield is up from 0.005 to 0.231. Overnight, the DOW fell -1.29%. The S&P 500 fell -1.23%. The NASDAQ fell -1.32%. The 10-year yield fell -0.052 to 2.321.

Fed Mester: We will have to make moves of 50 basis points

Cleveland Fed Chair Loretta Mester reiterated yesterday that the Fed should “front” interest rate hikes early in the year and begin quantitative tightening at the same time. “We have to recognize that inflation is very high. This is well above our target. We must do what we can with our two policy tools to control inflation,” she stressed.

“I think we’re going to have to make some 50 basis point moves,” Mester added. “I don’t want to presuppose every meeting between now and July, but I think we need to be more aggressive sooner rather than later.”

Fed Daly: If we have to do 50, that’s what we’ll do

San Francisco Fed President Mary Daly said she had “everything on the table” for the May FOMC meeting. “If we have to do 50, that’s what we’ll do,” she added. “We’re ready to do whatever it takes to make sure we get price stability, which no one clearly thinks we have right now.”

Daly pointed to the dot chart’s new projection that the interest rate will rise to 1.9% this year and 2.8% by the end of next year. “Compared to previous periods of tightening, this is a bit of frontloading, just as the SEP (Summary of Economic Projects) indicated.”

“I don’t think it’s appropriate for you, you know, to increase so rapidly, that we forget about the risks, but rather that we are dependent on the data,” she said.

“We could have a lot of tighter financial conditions globally and that’s something we need to think about,” she said. “Some increase in the policy rate above neutral will probably be needed. That’s on the road in 2023. At the moment, I don’t think we need to be so decisive about what that looks like.

BoJ Kataoka: Watch out for downside risks to the economy and upside risks to prices

BoJ board member Goushi Kataoka warned in a speech to business leaders that “Russia-related trade disruptions will weigh not only on the Russian economy but also on global growth by prolonging global supply constraints”. And for now, “we need to pay attention to the downside risks to the Japanese economy…as well as the upside risks to prices.”

Separately, the BoJ’s January meeting noted that one member said, “We are seeing stock prices rise for companies that are raising prices. Price increases can widen and increase inflation expectations in the medium to long term.

Another member said: “Many companies feel the limit of sticking to a business model that has been effective deflation. As they change their pricing behavior, inflationary pressures may intensify.

However, “nominal wage growth needs to exceed 2% for Japan to stably reach the BOJ price target,” one member said.

Japan’s manufacturing PMI rose to 53.2 in March, services PMI to 48.7

The Japanese manufacturing PMI fell from 52.7 to 53.2 in March. Manufacturing production fell from 49.3 to 50.6. PMI Services fell from 44.2 to 48.7. The PMI Composite fell from 45.8 to 49.3.

Usamah Bhatti, economist at S&P Global, said: “Flash PMI data indicated that Japanese private sector business activity fell for the third consecutive month in March. However, the decline in production eased from the previous survey period and was only marginal as companies noted that COVID-19 cases had continued to decline, allowing the near -state of emergency throughout Japan. By sector, manufacturers noted a further increase in production at the end of the first quarter, while service providers indicated a more moderate deterioration in activity.

Australia’s composite PMI hit 57.1, its 10-month high

Australia’s manufacturing PMI fell from 57.0 to 57.3 in March. The Services PMI fell from 57.4 to 57.9, a 10-month high. The PMI Composite rose from 56.6 to 57.1, also a 10-month high.

Jingyi Pan, Associate Director of Economics at S&P Global, said: “The Australian economy continued to expand strongly in March…reflecting robust business conditions following the COVID-19 Omicron wave. Pricing pressures have mounted, however, unsurprisingly compounded by a host of issues including flooding in Australia, war in Ukraine and wider supply chain constraints…

“Higher employment levels in March were a positive sign, although companies also widely reported higher wages. Meanwhile, the reopening of international borders has led to the first new growth in export activity in the service sector since June 2021.”

IMF: RBNZ should continue rapid policy normalization

In one reportthe IMF has urged the RBNZ to have “significant increases” in the short-term interest rate band to fight inflation as a priority.

The IMF said that “with the recovery well entrenched, tight labor market conditions and high inflation, it is appropriate to withdraw fiscal and monetary support as planned.”

Fiscal policy must “stay agile”. “While the planned tightening of fiscal policy is appropriate, the authorities should adapt the fiscal stance to the evolving pandemic and economic conditions, providing additional targeted support as needed.”

As for monetary policy, the IMF said it should remain “data dependent, and continued rapid normalization of policy will be appropriate under baseline conditions.”

“Given New Zealand’s strong cyclical stance and inflationary pressures, significant increases in the near-term official exchange rate are appropriate, signaling the RBNZ’s commitment to fighting inflation as a priority.”

Look forward

The SNB is expected to keep its interest rate unchanged at -0.75% today and reiterate the need for a negative rate and preparedness for intervention. The ECB will publish a monthly economic bulletin.

On the data front, Eurozone and UK PMIs will be featured. The United States will release unemployment insurance claims, durable goods orders, current account and PMI indices.

AUD/USD daily report

Daily pivots: (S1) 0.7464; (P) 0.7486; (R1) 0.7521; Continued…

A temporary high is formed at 0.7506 following the loss of bullish momentum. The intraday bias on AUD/USD initially turned neutral. Further rally is expected as long as 0.7372 support holds. On the upside above 0.7506 resistance at 0.7555 will be targeted. A decisive break there should confirm that the entire corrective decline from 0.8006 has been completed at 0.6966. On the downside, however, the breakout of 0.7372 will mitigate this bullish case and bring the downside bias back to the support at 0.7164.

Overall focus remains on key structural support at 0.6991. A sustained break will indicate that the entire uptrend from 0.5506 may end at 0.8006, after being rejected by long term resistance at 0.8135. A deeper decline would then amount to a 61.8% retracement from 0.5506 to 0.8006 to 0.6461. Meanwhile, a strong rebound from 0.6991 will maintain a medium-term uptrend. That is, the full uptrend from 0.5506 is still on for another uptrend to 0.8006 at a later stage.

Economic Indicators Update

GMT Ccy Events Real Forecast Previous amended
22:00 USD Mars P Manufacturing PMI 57.3 57
22:00 USD Services PMI March P 57.9 57.4
23:50 JPY BoJ Minutes
00:30 JPY Mars P Manufacturing PMI 53.2 52.7
07:45 USD Manufacturing PMI France March P 55.1 57.2
08:15 USD France Services PMI March P 55.2 55.5
08:15 CHF SNB decision on interest rates -0.75% -0.75%
08:30 USD Germany Manufacturing PMI March P 55.9 58.4
08:30 USD Germany Services PMI March P 54.3 55.8
08:30 USD ECB Economic Bulletin
09:00 USD Eurozone manufacturing PMI Mar P 56 58.2
09:00 USD Eurozone services PMI Mar P 54.3 55.5
09:00 GBP Mars P Manufacturing PMI 57.7 58
09:30 GBP Services PMI March P 58 60.5
12:30 USD Initial unemployment insurance claims (March 18) 210K 214K
12:30 USD Current account (USD) T4 -218B -215B
12:30 USD February Durable Goods Orders -0.60% 1.60%
12:30 USD Durable goods orders excluding transportation February 0.50% 0.70%
13:45 USD Mars P Manufacturing PMI 55 57.3
13:45 USD Services PMI March P 56 56.5
13:45 USD Natural gas storage -52B -79B

Comments are closed.