New York Open: USD Marches Higher

is trading firmly across the board as the US economic outlook improving and yields moving in favor of the dollar. Market sentiment is higher and the buck is gaining on shifting monetary policy expectations and strong fundamentals while impacted less by the risk-on environment, which has been associated with USD weakness. Global equities are broadly higher with most of Europe currently trading in positive territory and US stock futures are relatively flat. Commodities are softer on the back of a stronger USD and the Dollar Index continues to advance above the top of its daily cloud. On the data front, import prices in Feb. rosse 0.4% m/m (prior 0.0) and 5.5% y/y. The current account deficit widened by more than expected to -$124.1B in Q4 from -$107.6B (cons. -115B). Later today at 1000ET, Bernanke is set to speak in Nashville. (Bullish bias)

• EUR is relatively flat against most majors and stronger against the NZD, AUD, and JPY. EU sovereign yield spreads over Germany are lower across the board and Euro zone CPI came out in line with expectations at 2.7% y/y and 0.5% m/m in Feb. EZ industrial production was lower than anticipated but improved from prior readings with a decline of -1.2% y/y (cons. -0.8%, prior -2.0%) and +0.2% m/m (cons. +0.5%, -1.1%). The euro was softer against the buck and the pound with EUR/USD edging lower towards the psychological 1.30 big figure and EUR/GBP testing the 0.83 figure. (Bearish bias)

• JPY continues its decline against most of the G10 currencies with USD/JPY approaching new 11-month highs. The Nikkei surged about +1.53% overnight on optimism over a weaker yen as a strong currency is seen as a drag on corporate profits. The pullbacks in USD/JPY have been shallow with a steep upwards trend that has been supported by easy policy from the Bank of Japan and more recently by higher US Treasury yields. US 10-yr yields are at levels that have not been seen since late Oct. and are approaching the 200-day SMA which come in around 2.21%. Japanese data continues to come in soft with Jan. final industrial production at +1.9% m/m (prior +2.0%) and -1.3% y/y (prior -1.2%) while machine tool orders fell -8.6% y/y in Feb. The weaker data strengthens the case for the BoJ to be more accommodative, however its main goal is now to achieve the 1% inflation target. (Bearish bias)

• CAD remains in its 2012 range against the USD and is trading towards the lower end of the range with USD/CAD currently below the 0.99 figure. The Loonie is slightly weaker after 4Q capacity utilization disappointed with a print of 80.5% (cons. 81.6%). Lower oil prices (WTI crude is currently down by about -0.38%) is also weighing on the CAD, although as we have noted previously the relationship between oil and the Canadian dollar tends to diminish with crude above $100/barrel. The CAD continues to outperform the other commodity currencies (AUD and NZD) due to its relationship with the improving US economy. Technically, USD/CAD sees the daily Tenkan and Kijun lines converge around 0.9939/47 which is likely to be resistance for now. (Neutral)

• NOK significantly lower after a surprise rate cut by the Norges Bank. The bank cut benchmark rate by 25bps to 1.50% from the prior 1.75% while the consensus was for the bank to hold steady. The bank said that rates are to stay low longer than first estimated and that the continued downturn abroad is keeping inflation low. The Norges Bank also lowered its domestic growth prospects and noted the strength in the NOK. USD/NOK spiked on the rate cut announcement and approaches the convergence of the 55- and 100-day SMA’s around the 5.80 level.