With only 2 days to go before we know how the employment sector in the US fared in February, the USD remains bid trading narrow ranges but continuing to show signs of intent to move higher vs the basket. The RBI (India) cut rates to 7.5% from 7.75%. As we have noted previously there are still economies that remain in “cut” mode (Australia, Israel). No doubt they are behind the curve in that they really should have followed the US in cutting earlier to stimulate their economies. Of course it is never too late, but they have wasted opportunities to cut and stimulate. The Chinese HSBC services PMI rose marginally from 51.8 to 52.00. PBOC deputy governor Yi Gang ‘countered’ speculation on an imminent widening of the official trading band as he said that there is no urgent need to do so. USDJPY traded mostly unchanged around the 119.70 area. The Japanese services PMI declined substantially from 51.3 to 48.5. Australian Q4 Growth was reported at 0.5% Q/Q (2.5% Y/Y). AUDUSD rose yesterday from mid 0.77’s to mid 0.78’s but has since fallen back to trade just above 0.7800 in line with other major currencies. I have said this before and I will say this again, the USD is on the march (again) and baring any shocks (data), I see no reason why the rally cannot carry on unabated. PARITYFX continues to call for a rate hike in the US as early as MAY 2015. PARITYFX continues to call for PARITY vs the EUR as early as Q3 2015. In a nut shell, THE TREND IS YOUR FRIEND and the trend is USD UP.
As noted here FIRST last week, USDILS finally crossed the NIS 4.00 barrier yesterday trading as high as 4.0215. We wrote in this blog last week when the BOI cut rates that a warning signal had been fired and the BOI intends to allow the currency to fall vs the USD. We HIGHLY recommended any importer cover their FX risks (from 3.9350) as the currency was hanging off the cliff. As predicted by PARITYFX, the NIS slipped off. We have come back from the recent lows to trade just under the NIS4.00 handle, but the trend remains in favour of a weaker ILS and therefore we would again recommend being vigilant and covering any exposure.
Bank of Canada meet later today. We do not expect any change in rates. Despite lower energy and food prices, we feel the BoC does not necessarily need to act now. A wait and see is the wise move. As noted above the CAD will remain under pressure vs the USD.
No surprises yesterday from Gov. Carney. GBPUSD trading around 1.5365 and EURGBP 0.7250. The GBP will remain pressured vs the USD but buoyant vs the EUR. The reasons are simple, the UK economy is growing slower vs the US but faster vs the EU. No doubt the local elections in May will be a HUGE fundamental risk facing the GBP. A loss for the Conservatives will be seen (in my opinion) as negative and will likely see the GBP getting hammered in the markets. I know there are issues and no political party is ever perfect, but for the love of g-d surely seeing your bottom line increase & seeing your business grow spurs you to keep with the current Govt. in the hope that things will only get better. It is like changing a successful manager of a sports side with someone else (who we know is NOT UP TO THE TASK). The results could be catastrophic. Let’s hope sanity prevails in May and people think more above the love of being better off than the “need” to vote Labour/UKIP.
Lastly, ECB meeting/conference tomorrow. No surprises or fireworks expected. Rather we will simply find out more from the ECB how QE is working and when they are looking to start buying Govies (bonds).
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