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US Dollar at Risk as Data Dents Fed Outlook, Pound May Rise on PMIs

US Dollar at Risk as Data Dents Fed Outlook, Pound May Rise on PMIs

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Kiwi Dollar Rallies as RBNZ’s Wheeler Pours Cold Water on Rate Cut Bets
  • Yen Drops as Nikkei Advances, Aussie Dollar Follows NZ Namesake Higher
  • Pound May Rise on PMIs, US Dollar at Risk as Data Dents Policy Outlook

The New Zealand Dollar outperformed against its leading counterparts in overnight trade, rising as much as 1.1 percent on average. The move followed comments from RBNZ Governor Graeme Wheeler, who said the central bank expects to keep interest rates on hold for some time.

While Wheeler left the door open to easing if demand or price pressures weaken further, the markets appeared to interpret the comments as easing the perceived urgency of stimulus expansion. The Kiwi tellingly moved higher alongside New Zealand bond yields, pointing to ebbing rate cut speculation.

The Australian Dollar followed its Oceanic counterpart higher, adding as much as 0.6 percent. Meanwhile, the Japanese Yen faced selling pressure, dropping as much as 0.4 percent against the majors. The move played out alongside a swift rally on Japan’s benchmark Nikkei 225 stock index, pointing to ebbing haven demand amid swelling risk appetite as the catalyst driving price action.

The European economic data docket is relatively muted. TheUK Composite PMI reading is expected to show the pace of factory- and service-sector activity modestly accelerated in January after registering at the weakest since May 2013 in the prior month. UK economic news-flow has increasingly outperformed relative to consensus forecasts however, opening the door for an upside surprise thatoffers a boost to the British Pound.

Later in the day, the spotlight turns back to the US, where January’s ISM Non-Manufacturing Composite reading and the ADP Employment report are due to cross the wires. The former is seen showing the pace of service-sector growth slowed for a second consecutive month, producing the softest results since June. The latter is projected to reflect a 220,000 increase in payrolls last month, down from the 241,000 gain in December.

Realized US data has increasingly softened relative to expected outcomes recently, opening the door for downside surprises. Such results may weigh on the US Dollar as traders push back Fed rate hike expectations. It may likewise drive risk aversion amid worries the about the inability of US growth to offset malaise in Europe and Asia, triggering an unwinding of carry trades and boosting the Yen anew.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Unemployment Rate (4Q)

5.7%

5.3%

5.4%

21:45

NZD

Private Wages ex Overtime (QoQ) (4Q)

0.5%

0.5%

0.5%

21:45

NZD

Private Wages inc Overtime (QoQ) (4Q)

0.5%

0.5%

0.5%

21:45

NZD

Average Hourly Earnings (QoQ) (4Q)

0.4%

0.3%

1.4%

21:45

NZD

Employment Change (QoQ) (4Q)

1.2%

0.8%

0.9%

21:45

NZD

Employment Change (YoY) (4Q)

3.5%

3.0%

3.2%

21:45

NZD

Participation Rate (QoQ) (4Q)

69.7%

69.1%

69.0%

22:30

AUD

AiG Performance of Service Index (JAN)

49.9

-

47.5

0:00

NZD

RBNZ’s Wheeler Speaks in Christchurch

-

-

-

0:01

GBP

BRC Shop Price Index (YoY) (JAN)

-1.3%

-1.6%

-1.7%

0:30

AUD

NAB Business Confidence (4Q)

2

-

6

1:30

JPY

Labor Cash Earnings (YoY) (DEC)

1.6%

1.6%

0.1%

1:30

JPY

Real Cash Earnings (YoY) (DEC)

-1.4%

-

-2.7%

1:35

JPY

Markit Services PMI (JAN)

51.3

-

51.7

1:35

JPY

Markit/JMMA Composite PMI (JAN)

51.7

-

51.9

1:45

CNY

HSBC Composite PMI (JAN)

51.0

-

51.4

1:45

CNY

HSBC Services PMI (JAN)

51.8

-

53.4

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:45

EUR

Markit/ADACI Italy Services PMI (JAN)

50.0

49.4

Low

8:45

EUR

Markit/ADACI Italy Composite PMI (JAN)

50.1

49.4

Low

8:50

EUR

Markit France Services PMI (JAN F)

49.5

49.5

Low

8:50

EUR

Markit France Composite PMI (JAN F)

49.5

49.5

Low

8:55

EUR

Markit/BME Germany Composite PMI (JAN F)

52.6

52.6

Low

8:55

EUR

Markit Germany Services PMI (JAN F)

52.7

52.7

Low

9:00

EUR

Markit Eurozone Composite PMI (JAN F)

52.2

52.2

Low

9:00

EUR

Markit Eurozone Services PMI (JAN F)

52.3

52.3

Low

9:30

GBP

Markit/CIPS UK Services PMI (JAN)

56.3

55.8

Medium

9:30

GBP

Markit/CIPS UK Composite PMI (JAN)

55.5

55.2

Medium

9:30

GBP

Official Reserves (Changes) ($) (JAN)

-

-1664M

Low

9:30

GBP

Lloyds Business Barometer (JAN)

-

45

Low

10:00

EUR

Eurozone Retail Sales (YoY) (DEC)

2.0%

1.5%

Medium

10:00

EUR

Eurozone Retail Sales (MoM) (DEC)

0.0%

0.6%

Medium

-

EUR

Greek FinMin Varoufakis Meets ECB’s Draghi

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.1001

1.1222

1.1351

1.1443

1.1572

1.1664

1.1885

GBPUSD

1.4700

1.4909

1.5037

1.5118

1.5246

1.5327

1.5536

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

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