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13 Apr 2016

Dollar Defies Retail Data

United States Dollar: From glancing at the fundamental data yesterday you would expect to see the USD to have weakened, however quite the opposite occurred. In a Time Magazine interview with Janet Yellen, published yesterday, she stressed that a cautious approach to monetary policy is what is needed to avoid making “big mistakes”. The unexpected fall in U.S retail sales data that followed seemed to validate her stance, however the markets seemed to pay no attention to either. The reason for the USD strength comes from quite a few areas. Firstly the Singapore central bank surprised the market with policy easing announcement and a revision of pace for economic growth. As this was such a surprise high volume dollar buying occurred as the markets digested the data. Secondly U.S. bank earnings did disappoint but were nowhere near as poor as expected. Finally the Fed keeps mentioning “global slowdown fears” as the reason for delayed hikes. Positive trade date from China and a uptick in commodity prices eases these fears. Analysts are stating that the recent positive data from the world’s second largest economy may serve as encouragement for further hikes, this sentiment has been echoed by three fed presidents, spurring Dollar bulls. Two straight days of declines against the USD and yesterday’s drop against an already weak EUR have helped confirm fears that any upward moves for the GBP are short-lived, and downward pressure from the looming Brexit will be the continuing theme till June. Additionally a report showed U.K. House prices unexpectedly fell to a nine month low in March. With the U.K. Bank rate release today described by some as a non-event, and all announcements that follow predicted as dovish, the GBP is expecting to end the week eroding its previous gains. .

We expect a range today in the GBP/USD rate of 1.4055 to 1.4155

Euro: The EUR moved conversely to the USD as expected yesterday, and continued its decline off the back of data from Eurostat. Industrial production fell 0.8% in February from January, when it grew by 1.9%. Economists had forecast a 0.7% drop. Eurozone consumer price inflation today is expected to confirm deflation in March. The EUR yesterday fell to a 2-week low of 1.1295 against the greenback, and has scope to fall further.

We expect a range today in the GBP/EUR rate of 1.2500 to 1.2565

Aussie and Kiwi Dollars: The commodity currencies took a hit yesterday from fears that this weekend’s Doha meetings may not run as smoothly as first thought. The flames of doubt were fanned by Russian Oil Minister Alexander Novak who said in a closed-door briefing, the meeting would be loosely framed with few detailed commitments. Commodities fell victim to profit taking too as is normally the case when a sudden increase is seen. The bad news continued to flow with Moody’s releasing information stating that Australia’s AAA Credit rating at risk unless taxes are raised. The AUD and NZD decline was slowed with positive employment data showing increase in Australian employment, up 26.1k, and decrease in unemployment, down to 5.7% from 5.9% m/m. All eyes are now focused on CNY industrial production and GDP data due 02.00am GMT.

We expect a range today in the GBP/AUD rate of 1.8395 to 1.8495

We expect a range today in the GBP/NZD rate of 2.0515 to 2.0685

Data Releases

AUD: RBA Financial Stability Review

EUR: Final CPI y/y

GBP: MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate, Asset Purchase Facility, MPC Asset Purchase Facility Votes, MPC Member Shafik Speaks.

NZD: No Data

USD: CPI m/m, Core CPI m/m, Unemployment Claims, FOMC Member Powell Speaks, Natural Gas Storage, 30-y Bond Auction.

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