Forex Market Update
Thursday, july, 2012, 06:24 GMT

By Andrew Timothy Robinson FX-specialist, Market Strategist, Saxo Bank

US data extends its weak run putting risk appetite on the back burner overnight

RBNZ hikes rates as expected but also dovish in accompanying statement


MAJOR HEADLINES – PREVIOUS SESSION

US Jun. Durable Goods Orders out at -1.0% m/m vs. +1.0% expected and revised -0.8% prior
US Jun. Cap. Goods Orders Non-defense, ex-Aircraft out at +0.6% m/m vs. revised +4.6% prior
NZ RBNZ hikes OCR by 25bp to 3.0%, as expected
NZ Jun. Trade Balance out at NZ$276m vs. NZ$368m expected and revised NZ$768m prior
JP Jun. Retail Trade out at +0.4% m/m, +3.2% y/y vs. 0.4%/3.2% expected and -2.0%/+2.9% prior resp.
JP Jun. Large Retailers’ Sales out at -3.0%y/y vs. -4.0% expected and revised -3.9% prior
NZ Jun. Money Supply out at y/y vs. -3.1% prior

THEMES TO WATCH – UPCOMING SESSION

(All Times GMT)

UK Nationwide House Prices (0600)
Sweden Consumer/Manufacturing Confidence (0715)
Sweden Retail Sales (0730)
GE Unemployment (0755)
UK Net Consumer Credit (0830)
UK Mortgage Approvals (0830)
UK M4 Money Supply (0830)
EU Euro-zone Business Climate Indicator (0900)
EU Euro-zone Confidence Indicators (0900)
CA Industrial Product/Raw Materials Prices (1230)
US Weekly Jobless Claims (1230)

Market Comments:

The US data releases continued their weaker trend overnight with durable goods orders falling an 1.0% m/m versus +1.0% expected, although core goods orders (non-defense goods ex-aircraft) posted 0.6% m/m gains in June and May’s data revised higher to 4.6% from 2.1%. Nevertheless, markets focused on the headline figure and Wall St stuttered in its recent rally with the DJIA losing 0.38%, S&P -0.69% and the Nasdaq -1.04%. In other data, the Fed’s beige Book showed some softer patches across the country and slowing activity in the manufacturing sector, with tame price pressures and only gradual job market improvement.

The testimony of BOE MPC members was mixed. Governor King trotted out his ultra-dove leanings saying the Bank would likely have to keep rates at low levels even if growth surprises to the upside. He, and colleague Miles, noted that small firms’ access to credit was still an issue while Fisher expected a longer lag before the steep falls in GBP of late filtered through into the economy. Charlie Bean noted inflation had surprised to the upside with the Pound’s fall having a larger feed through impact on CPI than expected, though acknowledges that this dynamic was fairly consistent with the recent past.

In currencies, GBP was knocked back a touch after the MPC testimony and the mild risk aversion theme prevented EURUSD taking out resistance (alleged option defense) at 1.3050. The weak US data knocked oil prices below $77, and data showing rising inventories did not help, and this pulled USDCAD up from the 1.03 area. Weak data and softer stocks lent support to US treasuries with a successful $37 bln 5-year auction (highest bid/cover ratio in 4 years)providing further impetus and the resultant lower yields prevented USDJPY from extending gains above 88.0 while AUD continued to be under a cloud after the weak CPI data earlier in the day.

Early this morning the RBNZ hiked its overnight cash rate by 25bp to 3.0%, as was widely expected, but in a similar vein to the Bank of Canada, was more dovish in its accompanying statement, specifically saying "The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement." They also expressed some concerns about the Kiwi’s strength (“The New Zealand dollar has appreciated in recent weeks. This appreciation is inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices”) and the Kiwi obliged with a quick 60 point fall. In tandem with the softer tone, NZ’s trade data for June showed a narrower trade surplus (NZ$276m vs. revised NZ$768m in May).

Today’s Asian session was a modest affair with a mild risk aversion strategy evident initially. However, focus soon turned to month-end demand for portfolio hedging and initial ideas are the AUD, NZD and EUR will be in demand, hence the later bid tone to those currencies. Data releases after the RBNZ were second-tier and as expected so had little impact on activity. Heading into Europe we have UK Nationwide house prices, consumer credit, mortgage approvals and money supply, Sweden’s consumer/manufacturing confidence and retail sales, German unemployment and the EU’s confidence indicators. North America has a relatively quiet session with Canada’s industrial product/raw material prices and the weekly US jobless claims on tap.


More analysis: Saxo Bank Market News & Analysis

Risk Warnings:

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