Daily Forex Forecast 02/21/2012

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Australian Dollar: The solid gains in the Aussie yesterday could only be held onto until the start of the US session with strong US data and anticipation of the Fed’s minutes sending us on a slide back through 1.03. During Asian trade yesterday the Aussie managed to hold onto gains seen after the RBA minutes on Tuesday; maintaining 1.0350 as a weakening Kiwi saw some flows back into its cross Tasman counterpart. Unfortunately as the US session began this level was quickly given up and a down trend was started that would see us move towards 1.0270. The minutes indicated that several Fed members are keen on reviewing current easing policies as soon as the March meeting with concern being highlighted on the cost the current policies could mean to the Fed if the pace is not varied between now and when it is expected to come to an end next year. The Aussie fell further on this release sending the Aussie to its current level at 1.0250, and losses are likely to continue today with equities set for a poor day.

We expect a range today of 1.0210– 1.0295

New Zealand Dollar: It has been a horror day for the New Zealand Dollar as it fell off its recent highs after RBNZ Governor Wheeler said that the central bank was prepared to intervene to attempt to flatten out peaks in the currency. The comments were delivered in a speech to manufacturers and exporters yesterday and went against recent statements that the RBNZ is unwilling to intervene due to the costs involved and the unlikely success. Similar comments were included in the speech with Wheeler ruling out a Swiss style cap or anything like what the Yen has experienced but he did warn anyone against making ‘one-way bets’ against the Kiwi, stating they are prepared to intervene in on a smaller scale. NZD/USD immediately fell towards 84 and then was dragged lower offshore with the Fed minutes providing US dollar positive sentiment to the market. We find the NZD lower against all of its major counterparts this morning and is currently at 0.8350 against its US counterpart with further losses possible if Asian equities follow the falls seen on Wall street.

We expect a range today of 0.8300 – 0.8375

Great British Pound: A dovish BoE has seen the pound continue its falls as 1.5400 was gapped through before a hawkish US Fed saw the fall continue through 1.5250. The much awaited Bank of England minutes last night showed that the central bank was split in their last meeting as to whether further stimulus should be added to boost the economy and indicates that some easing, either in the form of asset purchases or an interest rate cut, may occur in coming months. There was a three to six split in the vote with Governor King among those calling for more stimulus. Also out last night was UK employment data which came in mixed with Jobless claims falling 12.5k but the unemployment rate increasing to 7.8%, these two releases seemed to be lost in the noise surrounding the BoE minutes and then later the Fed minutes which also helped strengthen the USD against the pound. This morning we open at 1.5230 against the US dollar while sterling is also weaker against the Aussie (1.4850) and flat against the Kiwi (1.8230). We expect a range today of 1.4795 – 1.4885

Majors: It has been quite a busy 24 hours for currency markets with the US Dollar weakening against most of its major counterparts on the back of events in Asia and Europe before the Fed minutes this morning saw a strong recovery. Out of Japan yesterday we had trade balance data and further comments from Abe and a BOJ board member that were seen as positives for the Yen, bringing USD/JPY back down towards 93.20. Heading into Europe we had German PPI (0.8%) and Eurozone consumer confidence (-23.6) both improving while Merkel made comments to the effect that EUR/USD between 1.3 and 1.4 is a normality; all these helped to further support the Euro as it reached a high close to 1.3430. Moving on from this, as the US session began, the market’s attention turned to the FOMC minutes from their last meeting. Released towards the end of the US session, the minutes showed that several policy makers were keen to review the current pace of quantitative easing at the March meeting indicating they were concerned about the risks of not being responsive to changes in other economic factors besides those highlighted (employment and inflation). The policy makers weren’t unanimous in this concern and there were also some that insist that any costs to the Fed are worth the turnaround in the key areas. The fact that there has been a discussion on how it could be scaled back means there is potential that the easing could come to an end sooner than many investors forecasted and as such the USD has strengthened against all of its major counterparts this morning with EUR/USD back below 1.33 and USD/JPY moving back towards 94.

Data releases:

AUD: Foreign exchange transaction

NZD: ANZ job ads

JPY: Foreign buying, Supermarket sales

GBP: Public sector net borrowing, Public finances

EUR: Eurozone PMI, German PMI, French PMI

USD: Consumer price index, Initial jobless claims, Philadelphia Fed, Leading indicators, Existing home sales, Markit PMI

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