Aussie Holds 103; Kiwi Surges on Retail Sales

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By Chris Gore | February 15, 2013 10:53 AM EST

GoMarkets

Aussie holds 103; Kiwi surges on retail sales

Inconsistent risk trends kept the Aussie from a breakout in either direction overnight with Europe's less than inspiring growth data later countered by much better than anticipated U.S jobless claims.

Overall demand for high beta currencies remained in play but none more so than the in-form Kiwi which has made a material break higher this morning after the release of retail data. Consumer spending bounced back in the 4Q with a 2.1 percent jump in retails sales from a revised -0.2 percent in the third-quarter.

The kiwi responded in kind, forging near 1 ½ year highs against the greenback and fresh 2 ½ year highs against the Aussie. A similar theme of strength has been seen across the board with the kiwi the only G10 currencies up against the Yen on the day.

From here we have little in the way of key local directives for guidance and we anticipate regional equity activity to set the pace in the domestic session. At this point we believe the G-20 communiqué shouldn't be a significant market mover. There's been a draft statement leaked re-affirming he G20's commitment to refrain from engaging in competitive currency devaluation, so in the absence of any surprises we should see the status quo maintained. If anything it may relieve some of the negative attentions surrounding Japan's stimulus efforts, in turn encouraging Yen bears to reenter the market.

Euro-Zone GDP slips, Euro follows suit

Euro demand continued to waver overnight, after a series of growth estimates showed the economy slipped deeper into a recession in the fourth quarter of 2012. Euro-Zone GDP fell a seasonally adjusted 0.6 percent in the fourth quarter, representing an annual contraction of 0.9 percent. Markets had positioned for a smaller 0.4 percent contraction or 0.7 percent on year. A similar theme of weaker than expected growth was noted from individual reports from Germany, France and Italy.

While it's generally considered much of the tail risk has been removed from the periphery, the less than inspiring growth picture in the region is a stark reminder of the challenges ahead and seen to be a point in favor of the ECB slicing the refinance rate below 0.75 percent.

The Euro slumped in the period to follow before finding support at 3-week lows of 1.3314. Similar moves were seen across the board, led by the EUR-JPY cross which slipped back to lows of Y123.8.

Yen strength, currency wars and the G-20

USD-JPY rate slipped back into the 92 handle ahead of the much anticipated Group of 20 which concludes in Russia today. A series of elements appear to be keeping the Yen from resuming its downward trajectory but conjecture over the criticism Japan faces from some of G-20 counterparts appears to be a primary stumbling block.

Still past G-7/G-20 statements we've seen on the issue of 'currency wars ' have been mostly fluff and little substance and according to a draft statement leaked overnight we can expect more of the same today.

Inadvertent or not, It's abundantly clear major economies from the United Sates to Japan are engaging in a currency war by proxy, given their efforts in recent years to rejuvenate respective economies using policy easing tools such as quantitative easing.  While central bank easing programs such as quantitative easing may not be specifically employed to weaken a currency, it's clear the consequence is something central banks and governments are all too happy to accept.

Right or wrong, efforts to spur economic growth through unconventional (or conventional) means such as quantitative easing are here to stay, and as long as nations such as the United States and the United Kingdom continue to pursue growth through stimulus, there is little that could be done to halt Japan's efforts to do the same. In other words; Pot, Kettle, Black.

Stronger than anticipated U.S jobless claims countered the downtrend from a brief period, but the USD-JPY rate slumped deeper into the negative over the course of the session. U.S jobless claims fell to 341,000 in the week ending February 9, outpacing estimates of 360,000 new claims for unemployment benefits.

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