CHF under pressure

In sharp contrast to AUD but for the same rationale (improving risk appetite and low volatility) the CHF has succumbed to pressure. Comments this week by Swiss National Bank officials highlighting their resolve to enforce the CHF cap, their belief that the currency is still overvalued, and are prepared to take further steps, highlight that the Swiss authorities wish for a much deeper correction lower in the currency. This is unsurprising as the CHF real effective exchange rate has been on a strengthening path over recent months, much to the likely chagrin of the SNB.

The fact that Swiss CPI inflation dropped back into negative territory on a YoY basis in February reinforces the need to further weaken the currency. Steps such as negative deposit rates and/or FX intervention cannot be ruled out. In the meantime, USD/CHF looks set to test resistance around 0.8930 (26 Feb high).

AUD supported but be wary of profit taking

AUD/USD broke above its 200 day moving average (0.9137) encouraged by upbeat comments about economic growth prospects from Reserve Bank of Australia Governor Stevens. The fact that AUD remains supported despite higher risk aversion overnight is encouraging.

A run of better than expected data including Q4 GDP, retail sales, trade and jobs report have underpinned the currency. Additionally bad news is good in the case of the China impact on AUD as weaker data has led to growing expectations of a stimulus package to boost China’s economy.

Against the background of some improvement in risk appetite, and low volatility, the AUD looks like an attractive bet. My view has been consistently constructive on the AUD over past months and I remain of the view that there are further gains in store although in the near term profit taking is expect to emerge around resistance at AUD/USD 0.9342.

Equities weaker, US yields lower, USD softer

The US Federal Reserve’s rejection of capital raising plans by several banks taken together with further confrontation between the US and Russia and a disappointing US durable goods orders report were sufficient to result in a sell off in equity markets, lower US yields and a weaker USD.

Gold failed to benefit in yet a further sign that its bull run has ended, with the metal honing in on its 200 day moving average at 1296.71. On the US data front headline February US durable goods orders beat expectations (2.2%) but core orders (-1.3%) were weaker than expected.

Although the lead for Asia is a weak one markets may still find some resilience due to expectations of policy stimulus from China. Similarly dovish talk from the European Central Bank will offer further support to market sentiment while undermining the EUR somewhat. On the data front today the main releases are US Q4 GDP revision (upward revision likely), and UK retail sales (rebound likely).

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