Weaker Sterling and Kiwi

February 20, 2013

Dovish gestures from the Governors of the Bank of England and Reserve Bank of New Zealand are weighing on their respective currencies.

  • BOE Governor King, whose 10 years on that job end at mid-2013, joined the minority in a 6-3 vote not to expand quantitative easing according to minutes of the February 6-7 meeting.  This was only the fourth such time King had sided with the minority on a monetary policy vote.  The vote at the January meeting had been 8-1 in favor of no change.  The majority in February conceded that raising the GBP 375 billion size of the asset purchase plan may become warranted.  Along with King, Miles and Fisher also wanted to raise such to GBP 400 billion at this month’s meeting.
  • RBNZ Governor Wheeler called the kiwi overvalued and hinted that a cut in the 2.5% official cash rate or foreign exchange market intervention are potential tools that are available to remedying the problem.

The U.S. dollar appreciated 1.2% overnight against the kiwi and is up 0.8% relative to sterling.  Otherwise the dollar has risen 0.4% against the Aussie dollar, 0.2% versus the Canadian dollar, and 0.1% relative to the euro.  The yen and Swiss franc are unchanged, while the Chinese yuan ticked 0.1% higher against the dollar.

In other central bank news,

  • The Bank of Thailand as expected left its key interest rate unchanged at 2.75%.  However, there was one dissent in a 6-1 vote that favored easing now. 
  • The Yomuri press reports that a list of four finalists for Japanese Prime Minster Abe’s nominee for BOJ Governor includes Iwati and Ito but omits the previously presumed front-runner Muto.
  • People’s Bank of China Governor Zhou has been retained in that post, as the new government elected to waive the 65 retirement age in his case.

The Nikkei index rose 0.8%, and stocks climbed by 2.0% in South Korea, 0.7% in Hong Kong and 0.6% in China.  But New Zealand stocks faltered 0.7%, and stocks are so far down 0.6% in Spain, 0.5% in Italy, and 0.3% in France.

Germany’s 10-year bund auction was weakly subscribed.  The 10-year bund yield rose four basis points, and the 10-year British gilt is up by three basis points.  Their Japanese counterpart is unchanged.

Gold sank below the $1600 threshold, dropping 0.9% to $1589.10.  Gold tends to move inversely with confidence in the U.S. economy.  Oil dipped 0.2% to $96.49 per barrel.

Japan saw a record JPY 1.629 trillion customs-clearance trade deficit in January.  This is not as bad as the headline looks because January is a seasonally weak month.  After adjusting for typical seasonal variation, the deficit was JPY 679 billion, smaller than December’s JPY 784 billion gap.  Moreover, seasonally adjusted exports and imports recorded month-on-month advances of 3.6% and 1.4%, suggesting a healthier picture.  Exports to the United States were 10.9% higher than in January 2012.

Japan’s all-industry index, a monthly supply-side proxy for GDP, jumped 1.8% in the final month of 2012, although it remained 0.8% weaker than a year earlier and only advanced 0.3% in 4Q12 compared to the third quarter.

Australian labor costs went up 0.8% on quarter and 3.4% on year in 4Q12, which was very close to market expectations and a somewhat better result in on-year terms than the 3.7% increase in 3Q12.  Two measures of Australia’s index of leading economic indicators were released.  The Conference Board’s gauge dipped 0.1% in December after a 0.2% decrease the month before.  Westpac-MI’s measure rose by 0.2% in December, however.

New Zealand producer output prices fell last quarter by 0.1% from 3Q and by 0.8% from a year earlier.  The PPI-I index also declined 0.3% from the third quarter and by 0.5% from the final quarter of 2011.

Malaysian GDP growth accelerated to 6.4% on year last quarter and averaged 5.6% in 2012 as a whole after being 5.1% in 2011.  Malaysian consumer price inflation was only 1.3% last month.

Chinese foreign direct investment was 7.3% lower than a year before in January, a deeper drop than had been seen in the year to December.

Keeping with the disinflationary theme, other price data released today showed

  • A dip in South African CPI inflation to 5.4% in January from 5.7% in December.
  • Lower British on-year growth in wage earnings — 1.3% excluding bonus pay in 4Q and 1.4% including bonuses — this despite a bigger-than-expected 12.5K decline in the claimant unemployment count of workers in January.
  • German CPI inflation of just 1.7% in January, down from 2.0% and at a seven-month low.  Non-energy consumer price inflation was 1.3%.
  • A dip in French harmonized CPI inflation to a three-year low of 1.4% in January versus 1.5% in December.  Core CPI was just 0.8%.
  • German producer price inflation, in contrast, accelerated to a 4-month high of 1.7% in January from 1.5% in December, reflecting a 2.1% rise in energy.

The Swiss ZEW index of economic confidence improved much more than predicted in February, rising to a 32-month high of 10.0 from minus 6.9 in January.

French business sentiment improved three points to a reading of 90 in January.  Analysts were looking for no change from December’s score.  France’s index of leading economic indicators slid 0.2% in December, but the coincident index ticked 0.1% higher.

Danish consumer confidence rose 0.7 points to a negative 2.0 reading in February.

U.S. releases today feature the FOMC minutes, housing starts, building permits, and producer prices.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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