Dollar to Extend Gains Against Euro and Pound on Weak Data, Risk Aversion

Key Overnight Developments

• New Zealand Credit Card Spending Grows Most in Eight Months
• Euro Consolidates, British Pound Declines in Overnight Trade




The Euro consolidated losses in a narrow range through Asian session trade, drifting sideways in a 60-pip band below the 1.35 figure. The British Pound traded lower, slipping as much as 0.9% against the greenback. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.




New Zealand Credit Card Spending grew 1.5% in January, the largest monthly increase since April 2009. The annual growth rate advanced to 2.6%, the highest in 18 months. Perhaps most interestingly, outstanding credit card balances posted the first month of positive growth since July 2009, adding 0.3% in the year to January. Increasing willingness to take on debt may reflect an improved outlook about future income and employment, which bodes well for private consumption and – by extension – for the ability of New Zealand’s economic recovery to become self-sustaining. That said, it seems premature to read too much into this outcome yet given yesterday’s disappointing consumer confidence survey.




German Producer Prices are expected to 0.3% from the previous month in January, the biggest increase since August 2009. In annualized terms, the pace of wholesale deflation is set to moderate to -4.0%, the lowest negative reading in eight months. Energy prices have led the metric higher over the previous two months and more of the same is likely this time around as oil’s rebound through last year begins to factor into the figures. Indeed, crude prices in terms of the Euro more than doubled through 2009.

Separately, preliminary estimates of Euro Zone Purchasing Manager Index figures are set to show that the composite metric tracking performance in both the manufacturing and services sectors fell for the second consecutive month in February. Looking at individual industries, the pace of manufacturing growth is expected to increase by the smallest margin in 11 months while that of services stalls altogether. German PMI figures are expected to yield a similar result, broadly suggesting that economic recovery in the single currency bloc is losing steam.

Rounding out the calendar, UK Retail Sales are expected to fall -0.5% in January after gaining 0.3% in the previous month. The annual pace of sales growth is set to print at 1.1% – the lowest in seven months – to mark the third consecutive decline. The disappointing outcome is unlikely to prove market-moving, however, considering it has been amply foreshadowed by last week’s release of January figures from the British Retail Consortium.

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