Dollar Mixed As Markets Await Fresh Drivers

new checkers

  • With the flurry of major US economic data out of the way, the FX market is searching for direction
  • During the North American session, the US reports some minor data points
  • Swiss National Bank kept policy steady, as expected; so too did Norway’s Norges Bank but it adjusted its expected rate path upward
  • The White House tapped market economist and television commentator Larry Kudlow to replace Gary Cohn
  • Czech Republic reported strong January data; Poland February CPI rose 1.4% y/y

The dollar is mixed against the majors as markets await fresh drivers. The Scandies are outperforming, while the Antipodeans are underperforming. EM currencies are mixed too. RUB and TWD are outperforming, while MYR and PLN are underperforming. MSCI Asia Pacific was up 0.1%, with the Nikkei rising 0.1%. MSCI EM is up 0.1% on the day, with the Shanghai Composite flat. Euro Stoxx 600 is up 0.4% near midday, while S&P futures are pointing to a higher open. The 10-year US yield is flat at 2.82%. Commodity prices are mixed, with oil flat, copper up 0.1%, and gold down 0.2%.

With the flurry of major US economic data out of the way, the FX market is searching for direction. It feels like it wants to pick up where it left off, and that’s resuming dollar sales. But as we’ve noted before, the euro, yen, and sterling also come with their own set of baggage. The FOMC meeting next week is as much of a non-event as a 25 bp hike can be. Some are holding out hope that the Dot Plots will be revised higher, but we stand by our call that it makes more sense to keep them as is.

Swiss National Bank kept policy steady, as expected. It noted that the Swiss franc remains “highly valued” and that the FX market remains “fragile.” The bank stressed that the current policy stance remains “essential.” It forecasts inflation averaging 0.6% in 2018 and 0.9% in 2019, down slightly from its December forecasts of 0.7% and 1.1%, respectively. The SNB also made its first forecast for 2020 inflation, at 1.9%. The forecasts suggest no hurry to tighten.

Norway’s Norges Bank also kept rates steady, as expected. However, it adjusted its expected rate path upward. The bank now sees a rate hike as most likely after this summer. It noted that “Economic growth appears to be somewhat stronger than expected, and the output gap for Norway is closing. Underlying inflation is low, but rising capacity utilization will probably push up price and wage inflation further out.”

EUR/NOK is trading at new lows for this year. The pair broke below the 200-day moving average near 9.53 and is on track to test the August 2017 low near 9.22. Note that the policy meetings after the summer are on September 20, October 25, and December 13.

The White House has tapped market economist and television commentator Larry Kudlow to replace Gary Cohn. Kudlow is cut from the supply side cloth, but has expressed opposition to the recently announced tariffs on steel and aluminum. Kudlow has reportedly agreed to head up the National Economic Council, but an official announcement is due out later today.

New Zealand Q4 GDP grew 2.9% y/y vs. 3.1% expected and 2.7% in Q3. At this point, slower than expected growth coupled with low inflation should keep the RBNZ on hold. Next policy meeting is March 22, and rates are expected to remain steady at 1.75%.

During the North American session, the US reports some minor data points. These include weekly initial jobless claims (228k expected), March Empire manufacturing index (15.0 expected), and March Philly Fed survey (23.0 expected). The US also reports February import prices, which are expected to rise 3.5% y/y. Late in the day, January TIC data will be reported. There are no Fed speakers today. Canada reports ADP data for February.

Czech Republic reported strong January industrial and construction output and retail sales. The economy remains firm, but inflation of 1.8% is now below the 2% target for the first time since November 2016. Next policy meeting is March 29, and no change had been expected regardless since the bank has been hiking 25 bp every other meeting. While a hike at the May 3 meeting seemed possible, the soft CPI data suggests the bank may change its pattern and wait until the June 27 meeting.

Poland February CPI rose 1.4% y/y vs. 1.8% expected and 1.9% in January. Its the lowest rate since December 2016 and below the 1.5-3.5% target range. No wonder the National Bank of Poland has tilted even more dovish. Governor Glapinski said the bank could keep rates steady until at least H2 2019 or even 2020. Previously, forward guidance saw steady rates until end-2018.