Currency Focus
GBP - I expect a more hawkish tone to the February Inflation Report which will be used to set out the BoE's case for a final 25 basis point interest rate hike in either March or April in our view.
"(About UK PPI) This will maintain the Bank of England's concern that manufacturers will try to take advantage of lower input costs to improve their margins rather than holding their prices steady or even cutting them.
JPY - I expect the Bank of Japan to hike once only in Q2, with the Fed on hold and the ECB hiking twice. It's basically a carry trade story. The key issue for the JPY will be whether or not there can be some recovery in interest rate expectations and this in turn will depend upon the data. Q4 GDP will be the main focal point this week in this regard and a strong number could lead to some profit taking on the JPY. The next BoJ meeting is on February 21.
The G7 did not mention carry trades directly and the statement did not signal any action that is likely to be taken by the policy makers. The yen was likely to weaken further in the near term.
AUD - The RBA lowered its forecast for underlying CPI this year, adding that at their recent meeting they saw no reason to raise rates as the immediate outlook for CPI was fairly subdued. However, they did say that all incoming data would be monitored as some risks remained in place, notably from a tight labour market. The softer tone to the statement does point to Aussie dollar underperformance in the near term. RBA still keeping a watchful eye on the tight labor market, it seems the RBA is telling the markets that rates will be on hold for 2007.
CAD - The jobs data are definitely responsible for the shift in the Canadian dollar. The Canadian dollar has been trading in such a tight range over the past little while...it needed something like this to push it out of its range.
"(About UK PPI) This will maintain the Bank of England's concern that manufacturers will try to take advantage of lower input costs to improve their margins rather than holding their prices steady or even cutting them.
JPY - I expect the Bank of Japan to hike once only in Q2, with the Fed on hold and the ECB hiking twice. It's basically a carry trade story. The key issue for the JPY will be whether or not there can be some recovery in interest rate expectations and this in turn will depend upon the data. Q4 GDP will be the main focal point this week in this regard and a strong number could lead to some profit taking on the JPY. The next BoJ meeting is on February 21.
The G7 did not mention carry trades directly and the statement did not signal any action that is likely to be taken by the policy makers. The yen was likely to weaken further in the near term.
AUD - The RBA lowered its forecast for underlying CPI this year, adding that at their recent meeting they saw no reason to raise rates as the immediate outlook for CPI was fairly subdued. However, they did say that all incoming data would be monitored as some risks remained in place, notably from a tight labour market. The softer tone to the statement does point to Aussie dollar underperformance in the near term. RBA still keeping a watchful eye on the tight labor market, it seems the RBA is telling the markets that rates will be on hold for 2007.
CAD - The jobs data are definitely responsible for the shift in the Canadian dollar. The Canadian dollar has been trading in such a tight range over the past little while...it needed something like this to push it out of its range.
posted by Naveen Pantera at 6:50 PM
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