· The dollar edged higher on Wednesday and antipodean currencies beat a hasty retreat after the Reserve Bank of New Zealand surprised the markets by opening the door to future monetary policy easing.
The dollar index versus a basket of six major currencies was up 0.2 percent at 96.912, adding to modest gains made overnight.
The New Zealand dollar tumbled after the central bank kept interest rates at a record low of 1.75 percent and said increased downside risks to its outlook meant the next move in rates was now more likely to be a cut.
The kiwi was last down 1.5 percent at $0.6803 after hitting a 2-1/2-week trough of $0.6797.
· “Industrialised nations are seemingly in a rush to adopt a dovish policy stance and New Zealand’s central bank has just joined them. In addition to the kiwi’s fall, the drop by the Aussie is also eye-catching,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
The U.S. Federal Reserve last week brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown.
The European Central Bank, Reserve Bank of Australia and the Bank of Japan have also taken a dovish tilt this year, while China’s central bank began loosening policy in 2018.
· “Bids for the dollar are returning with Treasury yields off their lows, and also because negative views towards the European economy have done no favours for their currency,” said Shin Kadota, senior strategist at Barclays in Tokyo.
· The euro lost 0.1 percent to $1.1255, extending overnight losses. The currency has been on shaky ground after Friday’s weaker-than-expected German manufacturing survey raised concerns about Europe’s largest economy.
· The pound edged down 0.15 percent to $1.3185, retracing its earlier gains in the face of the broadly stronger dollar.
· The 10-year U.S. Treasury note yield was a touch higher at 2.417 percent. The yield had fallen on Monday to 2.377 percent, its lowest since December 2017.
· EUR/USD Technical Analysis: Euro Set to Test Below 1.12 Again?
The Euro bungled an attempted upside breakout against the US Dollar. The currency pushed through channel top resistance only to be rejected downward, establishing another in a sequence of lower highs defining the down move since late September 2018.
The first layer of significant support is now at 1.1176, the March 7 low. A breach below that confirmed on a daily closing basis exposes the next layer of support in the 1.1110-32 area. Invalidation of the overall bearish bias would need a break and close above trend line resistance at 1.1434.
· Joseph LaVorgna, Natixis’ economist for the Americas, studied the last five tightening cycles and found there was an average of just 6.6 months from the Federal Reserve’s last interest rate hike in a hiking cycle to its first rate cut.
The economist points out, however, that the amount of time between hike and cut has been lengthening.
“For example, there was only one month from the last tightening in August 1984 to the first easing in September 1984. This was followed by a four-month window succeeding the July 1989 increase in rates, a five-month gap after the February 1995 hike, an eight-month interlude from May 2000 to January 2001, and then a record 15- month span between June 2006 and September 2007,” he wrote.
There are three conditions that need to be met for the Fed to reverse course and cut interest rates, LaVorgna said. First, the economy’s bounce back after the first quarter slump would have to be weaker than expected, with growth just around potential. Secondly, there would have to be signs that inflation is either undershooting the Fed’s 2 percent target or even decelerating. Finally, the Fed would have to see a tightening of financial conditions, with stock prices under pressure and credit spreads widening.
· Credit Suisse’s Global Chief Investment Officer Michael Strobaek, the bond market is usually a better indicator of what’s to come.
“I have to say I’m a bigger believer of the predictability by the bond market. And they’re signaling either a combination of inflation going much lower and, or, growth going much lower,” he told CNBC’s Nancy Hungerford on Wednesday at the Credit Suisse Asian Investment Conference in Hong Kong.
“We’re really going into a slowdown and a recession,” Strobaek said, clarifying that it may not be “right here, right now” — but it could come in 2 to 3 years.
· A new round of U.S.-China trade talks are due to kick off in Beijing on Thursday — but one expert says a deal will not likely come until May, or even June.
"It would be surprising to me if we did not have more fits and starts, more stop-and-go in these trade talks given the wide range of issues at stake and given the complexity," said Charles Dallara, Partners Group chairman of the Americas on Wednesday.
"I see late May, June more as kind of the realistic time frame than I see anything in April," said Dallara, a former managing director and CEO at the Institute of International Finance.
· President Donald Trump’s expected nominee for the Federal Reserve Board of Governors, Stephen Moore, said the U.S. central bank should immediately cut interest rates by half a percentage point, according to an interview with the New York Times on Tuesday.
None of the Fed’s current policymakers believe a rate cut is in order, let alone a half percentage point cut, which is twice the size of each of its recent rate hikes.
San Francisco Fed President Mary Daly, on Tuesday, in response to a question, said she does not support a rate cut. She said that rates are currently at neutral, and she would need to see more data before pulling the trigger on any rate move, up or down.
· European Central Bank (ECB) President Mario Draghi said that a temporary slowdown in the euro zone does not necessarily foreshadow a serious recession.
· British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse after Prime Minister Theresa May’s EU divorce deal was rejected again.
Lawmakers will now vote on a range of Brexit options on Wednesday, giving parliament a chance to indicate whether it can agree on a deal with closer ties to Brussels - and then try to push the government in that direction.
What will MPs vote on?
1. revoking Brexit;
2. holding another referendum;
3. supporting May's divorce deal;
4. supporting a "Norway plus" deal, which would keep the UK in the EU Single Market;
5. backing a "no deal" Brexit.
· Oil prices crept up on Wednesday, extending the previous session’s rise, but gains were kept in check amid growing fears over the impact of a global economic slowdown on demand.
Brent was up by 17 cents, or 0.3 percent, at $68.14 by 0311 GMT, reversing earlier losses of a similar magnitude. On Tuesday, the global benchmark rose 76 cents to $67.97 a barrel, not far below its year-to-date high of $68.69, reached on March 21.
U.S. crude futures added 9 cents, or 0.2 percent, to $60.03, also reversing losses in earlier trade. The U.S. benchmark rose $1.12, or 1.9 percent, to $59.94 a barrel in the previous session.
“We seem to have reached a state of equilibrium after the recent headline-driven choppy trading and we need to see some new impetus for price direction,” said Jeff Halley, senior market analyst at OANDA in Singapore.
· CRUDE OIL TECHNICAL ANALYSIS
A bearish Evening Star candlestick pattern continues to suggest that crude oil prices are carving out a top. Confirmation of reversal requires a daily close below support in the 57.24-88 area, a move that would set the stage to challenge the 55.37-75 zone. A push above the 38.2% Fibonacci expansion at 60.45 would invalidate bearish cues and expose the 50% level at 62.28.
Reference: Reuters, CNBC, BBC, Daily FX, Bloomberg
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