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FOREX: Dollar, Yen Aim to Extend Gains as Global Growth Fears Spread

FOREX: Dollar, Yen Aim to Extend Gains as Global Growth Fears Spread

2012-03-06 07:45:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • US Dollar, Japanese Yen Rise on Safe Haven Demand as Shares Drop in Asia
  • Australian Dollar Narrowly Outperforms Kiwi as RBA Keeps Rates on Hold
  • Stock Index Futures Point to Continued Risk Aversion in European Session

The US Dollar and Japanese Yen continued to outperform overnight as Asian stocks fell amid returning fears of a global economic slowdown, boosting demand for the go-to safe haven currencies. Not surprisingly, the sentiment-sensitive Australian and New Zealand Dollars suffered outsized losses. The Aussie proved to be a touch better supported than its Kiwi counterpart after the Reserve Bank of Australia kept interest rates unchanged as expected at 4.25 percent, offering a neutral policy statement that hinted the bank was in no hurry to resume the rate cut cycle.

As we discussed earlier, last week’s second 3-year ECB LTRO operation and semi-annual Ben Bernanke Congressional testimony produced broad-based resolution to the major sources of uncertainty in the global economic outlook. Specifically, EU banks now have a war-chest of close to €1 trillion, which is just about enough offset losses from a simultaneous default in Greece, Portugal and Spain. This meaningfully downgrades the threat of an imminent Eurozone-driven credit crisis. Meanwhile, the Fed is signaling in fairly overt terms (by its standards, anyway) that QE3 unlikely at this point.

With the Armageddon-level scenario in Europe dismissed for now and the US recovery left to its own devices, the markets were given space to return to familiar fundamental considerations as the principal guide of price action. This set the stage for the return of sustained risk aversion as investors were reminded of a consensus global GDP growth forecast that calls for the weakest performance since the world emerged from the Great Recession (according to a survey of economists polled by Bloomberg). Yesterday’s drop in China’s growth target for 2012 appears to have served as the trigger for the selloff.

Looking ahead, more of the same appears likely. Stock index futures tracking major European and US equity benchmark indexes are pointing firmly lower in late Asian trade, hinting risk aversion is likely to continue driving the Dollar and Yen higher against most of the major currencies. The economic calendar generally supports such an outcome, with the second revision of fourth-quarter Eurozone GDP figures expected to confirm that output in the region shrank 0.3 percent. Later in the day, Canada’s Ivey PMI gauge is expected to show economic activity slowed in February, snapping a three-month winning streak.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:01

GBP

BRC Sales Like for Like (YoY) (FEB)

-0.3%

-

-0.3%

0:30

AUD

Current Account Balance (AUD) (4Q)

-8374M

-8050M

-5824M (R-)

0:30

AUD

Australia Net Exports of GDP (4Q)

0.3

0.0

-0.6

1:30

JPY

Labor Cash Earnings (YoY) (JAN)

0.0%

-0.3%

0.1% (R+)

3:30

AUD

Reserve Bank of Australia Rate Decision

4.25%

4.25%

4.25%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

GBP

Halifax House Price (3MoY) (FEB)

-1.6%

-1.8%

Low

8:00

GBP

Halifax Plc House Prices s.a. (MoM) (FEB)

0.3%

0.6%

Low

10:00

EUR

Euro-Zone GDP s.a. (QoQ) (4Q P)

-0.3%

-0.3%

High

10:00

EUR

Euro-Zone GDP s.a. (YoY) (4Q P)

0.7%

0.7%

High

10:00

EUR

Euro-Zone Gov Expenditure (QoQ) (4Q P)

0.0%

-0.1%

Low

10:00

EUR

Euro-Zone Household Consumption (QoQ) (4Q P)

-0.2%

0.2%

Low

10:00

EUR

Euro-Zone Gross Fixed Capital (QoQ) (4Q P)

-0.4%

-0.1%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3125

1.3252

GBPUSD

1.5752

1.5899

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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