Asia today: EUR treads water after Turnaround Tuesday

Publication date: 13 June 2012
Author: Andrew Timothy Robinson, Saxo Bank

With risk currencies reverting back to square one yesterday (i.e. back to Friday’s levels after Monday’s euphoric rally), Asia just sat on its collective hands today and wondered what to do next.

There was some discussion about whether equity markets were leading risk currency direction or vice-versa but for most of the session they were moving step-for-step, or tick-for tick. Trading marginally lower overall, the EUR slid to 1.2475 versus the US dollar though volumes were markedly lower from the start of the week. The looming Greek election at the weekend is no doubt playing its part in reducing trading activity but there are still an awful lot of short EUR positions out there.

On the data front, Japan’s machinery orders bounced back in April, rising 5.7 percent from a month earlier and more than double market expectations. From a forward-looking perspective, manufacturers expect orders to rise 2.5 percent during the second quarter compared with a 0.9 percent rise seen in Q1.

From Australia, Westpac’s consumer confidence index continued to disappoint in June. The index rose a mere 0.3 percent on-month despite the survey being conducted in the week ended June 9, just after another 25bp cut from the RBA and the release of the stellar Q1 GDP numbers.

Ahead of tomorrow’s RBNZ rate meeting, NZ finance minister English complained that the strong NZD is slowing the re-balancing of the economy. He added that short-term growth would be driven by the country’s relatively strong terms of trade and rebuilding efforts after the Christchurch earthquake. However, NZ is looking at growth of between 2-3 percent over the next 2-3 years which, he opined, by developed world standards unfortunately looks “quite good”. NZD barely reacted and tracked other currencies lower with the RBNZ’s decision (consensus unchanged) due at 2100GMT.

Yesterday, markets continued to focus more on doom and gloom aspects of the European debt situation as the euphoria post-Spanish bank bailout waned dramatically. Periphery Europe debt and debt spreads were under pressure (but did recover some losses towards the close) and this led to an early sell-off in the EUR. Pressure was added from reported EUR sales from the SNB as it reallocates EUR derived from its intervention activities to defend the 1.20 EURCHF peg while Fitch cut long-term issuer default ratings on 18 Spanish banks. UK industrial and manufacturing production numbers were unimpressive, giving GBP a quick nudge lower but the pound’s quasi-safe haven status helped trim losses. A focus on possible additional QE measures from the Fed prevented a much deeper slide for most USD currency pairs.

US data releases were mostly second-tier, with import prices broadly in line with expectations on a month-by-month basis but declined 0.3 percent from a year ago, the first since October 2011 and the largest fall since June 2010. The IBD/TIPP economic optimism slipped to 46.7 from 48.5 but NFIB’s small business optimism held steady at 94.4 (94.5 last). The retracement in Spanish yields was an encouragement to Wall St and indices closed higher – DJIA up 1.31 percent, S&P +1.17 percent and the Nasdaq +1.19 percent.