Movements in the forex markets are not too decisive for the moment. Sterling made a bull run yesterday but there was no follow through buying. GBP/JPY is staying below 1.3929 near term resistance despite the rally attempt. GBP/JP’s recovery since last week’s low at 144.97 is also looking corrective. While Dollar is weak this week, Euro is not much better. EUR/USD’s recovery ahead of 1.2268 minor support has been very weak so far. Aussie and Kiwi are the better performing ones. But while AUD/UD does managed to extend the near term rebound, it’s starting to feel heavy ahead of 0.7892 resistance. Markets will look into US CPI today for more inspiration.
CPI unlikely to change Fed’s path
Markets are expecting US CPI to accelerate from 2.1% yoy to 2.2% yoy in February. Core CPI is expected to be unchanged at 1.8% yoy. So far, barring any disaster, a Fed hike in March is like a done deal even though Chicago Fed President Charles Evans might dissent. The overall impression is that consensus among Fed policy makers is three hikes this year. Weak (or the lack of) inflationary pressure provides little reaction for Fed to hike a fourth time. The picture could change if the impact of the government’s tax cut is passed through the economy later. But for now, a month of data is unlikely to alter Fed’s path in March and even June.
Australia NAB business confidence jumped to record
Australia NAB business condition jumped 3 pts to 21 in February, hitting a record high. However, business confidence dropped 3 pts to 9. NAB noted in the release that “business activity in Australia is robust” and “strength in conditions is broad based across industry groups.” The fall in confidence was seen as reactions to global market “turbulence” back in early February only. But the impact of those turbulence was “relatively limited”.
Overall, NAB maintained that view that RBA will hike by late 2018, but may delay till early 2019. It noted that “we expect by late 2018 the RBA will feel relaxed enough about the domestic fundamentals to cautiously start withdrawing the stimulatory policy stance it is currently running. However, it will depend heavily on the data flow and the risk is that the RBA will delay rate rises until early 2019”.
Also fro Australia, home loans dropped -1.1% mom in January.
RBNZ Spencer hailed macroprudential policy
RBNZ Governor Grant Spencer hailed the success of macroprudential tools in a speech to finance industry professional today. The policy infrastructure including the LVRs (loan to value restrictions). helped limit the risks of surge hour prices. It also helped keep interest low to boost inflation. And, after adopting the policy for five years, Spencer suggested a review would be run with the Treasury to consider ways to expand it. He also suggested to introduce a new committee on macroprudential policy alongside the monetary policy committee.
Canada PM Trudeau: No link between NAFTA and tariff exemptions
Canadian Prime Minister Justin Trudeau said that the exemptions on Trump’s steel and aluminum tariffs were not a “magical favor being done”. He pointed out that
“millions of jobs on both sides of the border depend on continued smooth flow of trades.” And the tariffs would hurt both sides. He also expressed the willingness to work with the on NAFTA. But, he also emphasized that “we don’t link together the tariffs and the negotiations for NAFTA.”
Looking ahead
The economic calendar is not too busy today. UK annual budget release will be a major focus. US CPI will be another. BoC Governor Stephen Poloz’s speech will also be watched.