The foreign exchange market remains subdued. The euro has returned to the middle of three-quarters of a cent range that has mostly confined the single currency this week.
This range affair follows the large, two-day sell-off last week on the back of the FOMC and seemingly more hawkish tinge, which has been largely left to stand in the speeches by a number of Fed presidents. Technically, yesterday the euro's 5-day moving average crossed below the 20-day average, a useful guide of the near-term trend, for the first time since February 10.
Against the yen, the dollar has been uninspiring. For the fifth session, it remains within the narrow JPY102.00-JPY102.65 range. The Corporate Service Price Index increase peaked in November-December 2013 at a year-over-year pace of 1.0%. The January and, now, February data show a moderation to 0.7%. This is consistent with other price measures that show after a rise last year, we have entered a period of stabilization. Inflation has failed to continue to rise, while the yen has also strengthened, provides additional evidence that arrest of deflationary forces is more a function of a yen weakness that structural changes.
What action of note there is in the foreign exchange marketis mostly accounted for by the Australian dollar. It finished yesterday's North American session above the 200-day moving average for the first time since April last year. There has been follow-through buying today that lifted the Aussie to $0.9235. RBA Governor Stevens comments about the Australian dollar were not particular aggressive, and the market was able to ignore them. The Australian dollar is trading at 4-month highs.
The Australian dollar's strength here in Q1, up 3.5% against the US dollar, caught many off-guard. The speculators in the futures market are still net short the Aussie, though the net position was cut by about 40% in the week through last Tuesday. This is largely a function of new gross longs entering. The speculative longs more than doubled (rising almost 13k contracts to 21.6k).
Short-term technical readings warn the Australian dollar may be a little stretched near midday in London. The $0.9210 area corresponds to a 50% retracement of the Aussie's decline since last October's peak near $0.9760. The next target for the new Aussie bulls is near $0.9340.
The Swedish krona is also on the move today. In what seems to be a bit of an exaggerated response to a modest decline in the consumer and manufacturing confidence and a smaller February trade surplus (SEK5.0 bln vs. expectations for SEK6.1 bln, which is still above recent averages), the krona eased about 0.5% against the euro. This puts the euro near SEK8.90, which is the upper end of this month's range. The euro is a bit stretched on the intra-day indicators, but the daily technical readings warn of the risk of further SEK weakness.
The PBOC fixed the yuan a little softer today for the first time this week. Although there is much media talk about the run on a small rural Chinese bank, the real story is that Chinese stocks trading in Hong Kong reached the highest level in the month, helped by Agricultural Bank Of China's (1288.HK) report of higher profits and stronger earnings. The Hang Seng Enterprise Index of Chinese shares (H-shares) has jumped 7% since March 20, rising another 1.6% today.
The Russian ruble is strengthening further today, gaining about 0.4% against the dollar and trading at its best level since February 11. As we noted yesterday, this week's tax payments may be spurring demand by Russian companies to convert their foreign currencies to rubles in order to make the payments. While some fund trackers report some inflows into Russian ETFs, other reports suggest foreign businesses operating in Russia are converting from rubles to dollars and euros and sending the funds back home.
The North American session features US durable goods orders, where a bounce is expected after a 1.0% decline in the January headline figure. In the post-FOMC environment, better data should translate into a stronger dollar, as the key underlying message is that the Fed is data not date dependent. The details of the durable goods orders report may not be as favorable as the headline and capex does not appear to be much help to the economy in Q1.
Separately, the second part of the Fed's stress tests will be announced at 12:00 ET and this part involves the capital plans of the financial institutions. US banks want to distribute an estimated $77 bln back to shareholders via dividends and stock buyback programs this year. The Fed may push back against a bank or two's plans.