Sweden Riksbank preview

There is almost no disagreement about expectations for today’s Riksbank policy decision. The central bank last lowered the repo rate in December and is unlikely to alter policy settings again so soon, with the policy rate likely to be maintained at 0.75%

The SEK is unlikely to be impacted by today’s rate decision, with the currency benefitting from the recent improvement in risk appetite. However, a relatively dovish statement from the Riksbank may undermine the SEK especially as it approaches EUR/SEK support around 8.75.

Further out, we expect SEK to continue to appreciate gradually but its worth noting that gains in the currency are not comfortable for the Swedish authorities, who have called for stricter capital rules on its banks to help weaken the currency (via keeping policy rates low).

US dollar soft ahead of retail sales

The USD has lost a fair bit of ground in February failing to benefit from a renewed rise in US Treasury yields. A more positive risk environment recently has undermined some of the demand for USDs while some negative data surprises such as the ISM manufacturing survey and non farm payrolls have also weighed on demand for the USD.

The release of January retail sales data today will give another opportunity to gauge the path of consumption at the turn of the year but unfortunately for the USD a relatively flat outcome for sales will provide little rationale to buy the currency. The consensus expectation is for headline retail sales to post a 0% monthly reading, while sales ex autis is likely to rise by a measly 0.1%.

In the near term this implies little potential for a USD rebound but over but over coming weeks I expect the USD to rally in line with higher US yields. USD index (DXY) is likely to flatline around the 80 level in the coming sessions before rallying over coming weeks.

Risk rally losing steam

The rally in risk assets is losing its momentum, with US stock markets failing to extend gains following a four day rally while US Treasury yields continued their ascent in the wake of Fed Chairman Yellen’s testimony highlighting no deviation from tapering. Her testimony to the Senate will be delayed today while US data in the form of retail sales is likely to register a soft outcome. Sentiment was boosted overnight by strong Chinese trade data in January and the approval by the US Congress allowing a suspension of the debt limit, a far cry from the major saga that took place last time the debt ceiling was about to be breached.

Additionally Eurozone markets will find some support from comments by European Central Bank board member Coeure who noted that the central banks is “very seriously” considering negative deposit rates. His view may be supported by the release of the ECB monthly bulletin today and Survey of Professional Forecasters (SPF). Coeure’s comments undermined the EUR however, while in contrast sharp upward revisions to growth forecasts by the Bank of England in its Quarterly Inflation Report boosted GBP. Suffice to say, EUR/GBP dropped like a stone and looks set to remain under downward pressure.

AUD hit by weak jobs data

AUD has been one of the best performing major currencies so far in February. Better than expected Chinese trade data released yesterday was a boon for the AUD given Australia’s strong trade links with China. Moreover, as markets have backed away from RBA policy easing expectations AUD has gained a sound footing.

Positive sentiment for the AUD was dashed today however, following the release of January jobs data which came in worse than expected at -3.7k versus +15k consensus. The details were weak too, with the unemployment rate rising to a 10 year high of 6% and participation rate dropping to 64.5%.

The data will clearly restrain AUD in the short term, but is unlikely to spark renewed risks of further policy easing given a rise in inflation pressures. In this respect, AUD is set to continue to show some resilience over coming weeks. Near term AUD/USD support is seen around 0.8915.

AUDjobs

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