AUD Setback On Weak Capex, USD View Remains On Hold

 | Feb 26, 2015 06:19AM ET

Two days of US Federal chair Janet Yellen testimony left the market entirely without a “takeaway” or catalyst to alter its view on the US dollar, which merely defaulted slightly to the weaker side, remaining in limbo versus the euro and yen, and generally weaker against sterling and the commodity currencies.
It’s tough to see what the next catalyst will be for this market as the most important next round of USD data doesn't arrive until next week. We have an end-of-month fixing into tomorrow.

SEK rallied in the wake of Riksbank minutes that brought little enlightenment or reaction in Swedish rates. One member even dissented from the decision to start the symbolic quantitative easing purchase, while the vote to cut the interest rate into negative territory was unanimous. The krona rallied even despite assurances from the minutes that additional unconventional policy and moves between regularly scheduled meetings were a possibility.
AUD weakened sharply overnight on the Q4 capital expenditures number, which saw a 2.2% fall quarter-on-quarter. This nipped the attempt above 0.7900 in AUD/USD in the bud and nixed the AUD/NZD rally attempt as well. We have an Reserve Bank of Australia meeting next Tuesday and this market is highly reactive to data as the rate cut at that meeting is not fully priced into consensus expectations, though the Australian two-year rate dipped to new record lows overnight.
GBP is pushing aggressively higher ahead of today’s Q4 GDP revision and related figures, which are expected to show a slight downward revision to a still solid +2.7%. Note that exports are only looking to grow +1.1% over the same period, an ongoing reminder of the UK’s ugly structural problem, which is only plastered over by large capital inflows to offset the world’s worst twin deficit and much of the currency’s resilience is on the policy divergence of the Bank of England vs. European Central Bank and the slide in EUR/GBP.
Chart: GBP/USD
To be fair, the GBP/USD sell-off was spectacularly consistent and brutal, and this recent rally is so far relatively modest in comparison. Even a 38.2% retracement of the entire sell-off wave from the 1.72+ top to the sub-1.50 low doesn't come in until just above 1.5800. Watch for a test higher still if today’s UK data is supportive and if we get a weak batch of US data today and/or next week.