The euro has shrugged off the disappointment of the weaker Ifo reading at the end of last week and the slight fall in the German Gfk consumer confidence to 4.4 in March from 4.8 in February. But, with IG Metal due to publish their formal wage demand the ECB’s Trichet has once again warned about the importance of wage constraint.
Further hawkish talk from the ECB is expected, keeping rate expectations elevated and the euro supported. Moreover, the moderation in tone from Fed officials regarding inflation is also now likely to start weighing on the USD more broadly, particularly given that the Fed minutes revealed that the FOMC had discussed moving towards a more neutral bias. Indeed, the Fed’s Fisher said that inflation may be moderating. The Fed’s Yellen also said that she was encouraged by the recent easing in inflation.
A survey by central banking publications showed that diversification away from the USD into EUR, GBP and JPY has been taking place. The survey found that 21 of the 47 central banks said that they had increased their weighting of the euro in reserves, while only 7 reduced their holdings of euros. Overall 19 central banks reduced their holdings of
USD, while 10 increased their holdings of USD. Nine out of ten central banks suggested that there was further scope for diversification of reserves.
The Hometrack House Price survey showed that
A break above the 1.9675 resistance will open further upside potential towards 1.9745 initially and then 1.9845.
The NZD has continued to press higher following the rise in the NBNZ business conditions survey with 25.7% of companies surveyed saying they expect their business to improve in the next 12 months, up from 24% from the previous survey. This takes business confidence to a 3-year high. The market is now fully pricing in the prospects of a rate hike by the RBNZ at the March 8th meeting. This offset the disappointment of the wider than expected trade deficit for January, which came in at NZD833m. NZDUSD has kept the pressure on the upside, but we would suggest caution with long position given the approach of major resistance at the 0.7095 January high. Failure to overcome this barrier will likely trigger a set back.
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