Dollar In Range After FOMC, Data Lifts Asian Markets

The dollar remains in range as the Fed repeated its messages after the overnight FOMC meeting. Stocks strengthened, with DOW hitting a historical intraday high of 14546 before closing firmly at 14511. The Fed, as expected, left the policy rate unchanged and the asset purchases at US$ 85B. Policymakers acknowledged improvements in economic developments since the January meeting, but indicated that the still-high unemployment rate would be a hindrance for the Fed to achieve its dual mandate. At the press conference, Fed Chairman Bernanke stressed that "one thing we would need, is to make sure that this is not a temporary improvement". He also mentioned the job market, and said that "still-high unemployment in combination with relatively low inflation underscores the need for policies that will support progress toward maximum employment in the context of price stability". Economic projections were revised modestly lower, showing less growth and inflation but a better job market. The top end of the range for 2013 real GDP growth tightened to 2.3-2.8%, compared to 2.3-3.0% as of December. The core inflation range eased to 1.5-1.6%, from previous estimates of 1.6-1.9%. The unemployment rate was revised lower to 7.3-7.5% from 7.4-7.7%. As was the case in December, the majority of meeting participants continue to expect the first rate hike to come in mid-2015.The modest downgrade of staff projections was to reflect restrictive fiscal policy and downside risks to growth.

Economic data released in the Asian session were also risk supportive. New Zealand's GDP rose more than expected by 1.5% qoq in Q4, versus consensus of 0.9% qoq. That's also much better than prior quarter's 0.2% qoq rise. Also, it's nearly twice as strong as RBNZ's forecast of 0.8%. It's believed that the data would trigger RBNZ to rethink their position of keeping rates unchanged at least till next year. On the other hand, the HSBC Chinese PMI manufacturing rose more than expected to 51.7 in March versus consensus of 51.2. The data suggested that recovery in China is still underway even though the pace is modest. And, the weaker than expected reading back in February was much likely a result of the lunar new year holiday. HSBC noted that the Chinese economy is "still on track" for a "gradual growth recovery" and "inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative".

However, data from Japan was not too encouraging. Japan reported an eighth consecutive monthly trade deficit, at JPY 1.1T in February, worse than the expected JPY 1T deficit. Exports dropped -2.9% yoy, while import rose 11.9% yoy. Exports to China dropped -15.8% yo,y while exports to Asia dropped -5.2% yoy. Exports to the EU also dropped -9.6% yoy. Exports to the U.S. rose 5.7% yoy. The overall picture indicates that the impact of the yen's recent depreciation is yet to be seen. This supports the case for the BoJ to weaken the yen further to boost exports.

Cyprus has announced its banks will remain closed until Tuesday at least, after the parliament rejected the rescue plan with bank deposit tax proposal. ICyprus is perusing a new "plan B" which would be discussed today. The proposal might still include the controversial bank levy, but could include a "structural investment fund" reinforced by various provident funds. The fund could also link to bond issue and natural gas prospects. Russia’s Finance Ministry reported that Cyprus is seeking a EUR 5b loan in addition to a five-year extension of a loan of EUR 2.5b that matures in 2016. No progress has been made so far.

Looking ahead, Eurozone PMI from will be a major data focus. The U.K. will release retail sales and public sector net borrowing. Canadian retail sales, US jobless claims, housing data and the Philly Fed survey will be featured in the U.S. session.