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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

GMTCCYEVENTACTEXPPREV
21:45NZDUnemployment Rate (4Q)5.7%5.3%5.4%
21:45NZDPrivate Wages ex Overtime (QoQ) (4Q)0.5%0.5%0.5%
21:45NZDPrivate Wages inc Overtime (QoQ) (4Q)0.5%0.5%0.5%
21:45NZDAverage Hourly Earnings (QoQ) (4Q)0.4%0.3%1.4%
21:45NZDEmployment Change (QoQ) (4Q)1.2%0.8%0.9%
21:45NZDEmployment Change (YoY) (4Q)3.5%3.0%3.2%
21:45NZDParticipation Rate (QoQ) (4Q)69.7%69.1%69.0%
22:30AUDAiG Performance of Service Index (JAN)49.9-47.5
0:00NZDRBNZ’s Wheeler Speaks in Christchurch---
0:01GBPBRC Shop Price Index (YoY) (JAN)-1.3%-1.6%-1.7%
0:30AUDNAB Business Confidence (4Q)2-6
1:30JPYLabor Cash Earnings (YoY) (DEC)1.6%1.6%0.1%
1:30JPYReal Cash Earnings (YoY) (DEC)-1.4%--2.7%
1:35JPYMarkit Services PMI (JAN)51.3-51.7
1:35JPYMarkit/JMMA Composite PMI (JAN)51.7-51.9
1:45CNYHSBC Composite PMI (JAN)51.0-51.4
1:45CNYHSBC Services PMI (JAN)51.8-53.4

European Session

GMTCCYEVENTEXPPREVIMPACT
8:45EURMarkit/ADACI Italy Services PMI (JAN)50.049.4Low
8:45EURMarkit/ADACI Italy Composite PMI (JAN)50.149.4Low
8:50EURMarkit France Services PMI (JAN F)49.549.5Low
8:50EURMarkit France Composite PMI (JAN F)49.549.5Low
8:55EURMarkit/BME Germany Composite PMI (JAN F)52.652.6Low
8:55EURMarkit Germany Services PMI (JAN F)52.752.7Low
9:00EURMarkit Eurozone Composite PMI (JAN F)52.252.2Low
9:00EURMarkit Eurozone Services PMI (JAN F)52.352.3Low
9:30GBPMarkit/CIPS UK Services PMI (JAN)56.355.8Medium
9:30GBPMarkit/CIPS UK Composite PMI (JAN)55.555.2Medium
9:30GBPOfficial Reserves (Changes) ($) (JAN)--1664MLow
9:30GBPLloyds Business Barometer (JAN)-45Low
10:00EUREurozone Retail Sales (YoY) (DEC)2.0%1.5%Medium
10:00EUREurozone Retail Sales (MoM) (DEC)0.0%0.6%Medium
-EURGreek FinMin Varoufakis Meets ECB’s Draghi--High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.10011.12221.13511.14431.15721.16641.1885
GBPUSD1.47001.49091.50371.51181.52461.53271.5536

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

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