Opening Comment

OPENING COMMENT

The focus in Asia has been centered on underperformance in the antipodeans with both Aussie and Kiwi getting hit hard following the much anticipated Australian CPI release. Although CPI had come in slightly higher than expected, the number was the lowest in a decade, and left many carry traders concerned and doubting recent restrictive monetary policy actions from the RBA. This in conjunction with a shift in risk sentiment, has resulted in a massive bout of profit taking and stop clearing with Aud/Usd taking out key support below 0.9100. Australian Treasurer Swan in reaction, has said that the data shows a broad based easing in inflation on the back of the global recession, and he expects inflation to remain low in the near term.

Kiwi was also weighed down as traders began to revise their expectations for the upcoming RBNZ rate decision due out early Thursday. While the local economy has performed admirably throughout the crisis, the central bank needs to be focused still on softer inflation data and the threat of a double dip recession, even at the expense of potentially falling behind the curve. It is now widely expected that the RBNZ will leave rates on hold at 2.50%, with more of the focus to be placed on the accompanying central bank language for future hints into the direction of monetary policy. While in recent weeks we have heard some supportive and accepting comments from NZ officials with regard to the Kiwi rate, historically, this has not been the case and the longer-term sentiment has been one which is not supportive of an elevated exchange rate. Our feeling is that the central bank has been burned in the past when trying to talk down the currency, and as such, has taken a more reserved approach. However, at the end of the day, a stronger currency does not seem to be what the RBNZ really wants.

On the data front, New Zealand business confidence has slipped from the previous print which has not helped the already beaten down currency. Elsewhere, more concerns in the financial sector with GMAC said to be in advanced talks with the US Treasury to receive a third round of taxpayer money. JP Morgan Chairman & CEO Dimon has come out in support of the USD, while Treasury Secretary Geithner says he sees the USD remaining the reserve currency of choice. Finally, Bank of Canada Carney has given the Loonie a mild boost after saying that he does not anticipate a double dip recession in Canada. Looking ahead to the European session, the calendar is very light with the only key release coming from German CPI (0.1% expected) due at 7:00GMT. US equity futures and commodities are both offered in early trade.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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