Global Markets Overview:

  • RBNZ Interest Rate Decision: 2.75%, Expected: 2.75%, Previous: 2.50%
  • Australia Unemployment Rate (FEB): 6.0, Expected: 6.0%, Previous: 6.0%
  • Australia Employment Change (FEB): 47,300, Expected: 18,000, Previous: -3,700
  • Australia Fulltime employment (FEB): 80,500, Previous: -7,100
  • Australia Part-time employment (FEB): -33,200, Previous: 3,400
  • China’s Premier Li says the risks of China’s debt is under control
  • RBNZ’s Wheeler says he wouldn’t expect FX gains on New Zealand interest rate hikes
  • RBNZ’s Wheeler says higher exchange rate would be a concern, and a headwind for exporters

FX Flows/Orders:

  • EUR/USD suddeny spiked ahead of the London open, hitting a fresh intraday high of 1.3947
  • Sizeable stops were triggered on the way up and leveraged names were the main buyers
  • There was a lot of talk about offers from Asian sovereign names 1.3920-40 the past few days; possible that speculators tried to front-run them with tight stops and got disappointed now
  • Dealers are reporting some more offers resting at 1.3950 and in better size ahead of the 1.40 barrier option
  • Fast money rushed into AUD/USD after the employment data was released; earlier, leveraged funds were good buyers of the Aussie $ throughout the NY session, as risk appetite improved
  • Supply from real money names reported from 0.9080 up to 0.91; possible short-term specs will look to take some profits up here
  • It is likely the pair will remain bid in London; bids are slowly building at 0.9050 and larger at 0.9020
  • USD/JPY remains a rather boring pair; still solid buying interest from Asian names, including sovereigns, around 102.50; importers are bidding 102.20-30
  • To the topside, offers from leveraged funds at 103.00, while stops are building above 103.10
  • In GBP/USD, the key levels to watch are 1.6685 and 1.6730-35 to the topside and 1.6630 & 1.6570/75 to the downside

Market Sentiment:

The RBNZ rate hike by 25 bps to 2.75 % was widely foreseen, but the bank’s statement was more hawkish than most market participants expected.

The central bank noted that inflationary pressures are increasing and are expected to continue doing so over the next two years. Hence, it is important that inflation expectations remain contained and this will be achieved by raising interest rates towards a level at which they are no longer adding to demand. Furthermore, the RBNZ’s 90-day interest forecast was raised by 23 bps at the December 2014 point, implying an OCR of 3.75 %. We can conclude  that bullish sentiment for the Kiwi will likely persist and many who had a “buy-the-rumour/sell-the-fact” strategy for the RBNZ meeting had to cover or abandon their plan for now.

The Aussie Dollar rallied on better than expected employment data and this added to the risk-on bias in global markets. Correlations in markets can quickly change; we saw plenty of AUD selling on Tuesday based on the sell-off in Copper futures, while yesterday, few were concerned by this and rather focused on the spike in Gold. With geopolitical tensions still on a high level, this uncertainty and sudden changes from risk-on to risk-off and back will likely persist in the short-term.

Upcoming Events:

  • 07:45 GMT – French CPI (MoM) / +0.4 % f/c
  • 10:00 GMT – ECB Monthly Report
  • 10:00 GMT – Italian CPI / -0.1 % f/c (MoM) / +0.5 % f/c (YoY)
  • 12:30 GMT – US Initial Jobless Claims / 330k f/c
  • 12:30 GMT – US Retail Sales / +0.2 % f/c