USD volatile with bank issues v data battle
The US dollar started to recover yesterday but was then rocked by a dreadful Empire State Manufacturing Sentiment Index of minus 24.6, against a forecast of minus 8. There is also turmoil in banking stocks after The Saudi National Bank refused to further fund Credit Suisse and they had to turn to the Swiss National Bank for up to $54 billion in funding. They were cited as a problem in the wake of the collapse of SVB in America. Gold was up 1%, a sure sign that investors are spooked but Credit Suisse shares did start to recover later in the day. With all that going on, investors were in and out of US assets like a rabble of fiddlers’ elbows. The GBPUSD rate dropped to just above $ 1.20 before bouncing to $1.21 and the EURUSD rate plunged two cents to $1.0523 before regaining half of the losses to $1.0623. A raft of housing data is due this afternoon along with a couple of sentiment indices from the Philadelphia Fed. All to play for today.
AUD boosted by strong employment data
The Australian employment data for February, released overnight was even better than the already positive forecasts. Australian businesses created 64,600 fresh jobs in February, bringing the unemployment rate down to 3.5%. That is about as close to full employment as any country is likely to get. In fact, a 3.4% rate, seen in just two months last year, is the lowest I can find on data going back to the 1980s. Quelle Surprise, the Aussie dollar gained favour in the markets. The GBPAUD rate is down to AUD 1.8170 this morning. That is only 1.3 cents down on the week’s highs but it is against a recovering GBP. No further Aussie data today, so range trading below those highs is likely but we will see the minutes from the last Reserve Bank of Australia meeting on Tuesday..
NZ GDP disappoints.
By way of contracts with their neighbour, Australia’s strong data, the New Zealand economic growth data was a big disappointment. In fact, it produced economic contraction of 0.6% in the three months to December, bringing the annual growth rate down to 2.2%, against a market expectation of 3.3%. manufacturing and export businesses took the largest hit but an improving tourism situation helped a little. The data does call into question whether the Reserve Bank of New Zealand can legitimately continue to raise the base rate. The central bank dilemma between controlling inflation without killing growth is writ large in these numbers. Understandably, that caused the Kiwi dollar to be sold off. The GBPNZD rate spiked to NZD 1.9620 and is only just below there this morning.
ECB rate hike today – maybe
A week ago, everyone who had a platform was telling us the European Central Bank would hike their base rate by 50 basis points today to bring the base rate up to 3.5%. However, this week’s data and the banking industry turmoil following the SVB collapse has called that certainty into question. On balance, the ECB probably will hike their base rate this afternoon. Whether it will be a 25BP or 50BP raise is a matter of debate and whether President Christine Lagarde will strike a more dovish tone in the press conference is also debatable. For now, the GBPEUR rate is still higher on the week at €1.1385, albeit down ¾ of a cent from yesterday’s highs. The EURUSD rate had a very volatile day yesterday but has settled at $1.0630 ahead of the ECB announcements. I think we can expect another lively day for the Eurozone’s shared currency.