A little less confusion

There’s the look of a snow globe to the currency market at the moment. Every morning investors pick it up, give it a good shake, and sit back to see what will happen. Tuesday’s shake produced a little less confusion than the previous two days but the risk-on/risk-off debate remained unresolved.

Northern Scandinavia’s crowns, the NOK and SEK, had a productive day, albeit one that played out away from the limelight. Norway’s krone was out in the lead with an average gain of 0.9% while the SEK shared second place with the Australian dollar. The safe-havens clung together at the back of the fleet. At the very rear, the USD and JPY lost an average of 0.5% while the CHF was just ahead of them, weakening by only 0.4%. The EUR and GBP stayed out of it. They were unchanged, on average and against one another, and were kept company by the NZ dollar.

The Aussie’s relative success appeared to be the result of the Reserve Bank of Australia’s monetary policy statement. Although it had attracted little attention when it appeared overnight, the European market evidently saw it as positive for the AUD. While the RBA does not anticipate tightening policy “until 2024 at the earliest”, it did not extend that commitment to the even later date that some had feared. Revised data for fourth quarter GDP, released this morning, put growth stronger than previously thought at 3.1% but had no lasting effect on the AUD.

Canada’s rebound

During London’s day the two highest-profile data sets were Eurozone consumer prices and Canadian fourth quarter gross domestic product. Both were followed by an upward move for their respective currencies, though neither was hugely positive. The euro was in the end flat on the day and the Canadian dollar almost so.

Eurozone inflation came in at an estimated 0.9% for February, unchanged from January and only just shy of the 1% forecast. Food, alcohol and tobacco had the greatest upward impact on the index while cheaper energy held it back. Individual national inflation rates ranged between Greece’s -1.9% and Germany’s 1.6%.

The first showing for fourth quarter GDP in Canada put growth at 2.3% quarter-on-quarter, an annualised 9.6% in US terms and ahead of the 1.8% growth forecast by analysts. In 2020 as a whole the Canadian economy shrank 5.4%, “the steepest annual decline since quarterly data were first recorded in 1961”.

Services PMIs

It being the third day of the month, the focus today is on the purchasing managers’ indices for the services sector. New Zealand kicked off with a 53.4 and Japan followed up with a 46.3, for a 13th consecutive month in the sub-50 contraction zone. China’s services PMI was half a point lower on the month at 51.5.

Spain set the ball rolling in Europe with an unimpressive 43.1, its seventh successive sub-50 reading. Covid restrictions, reduced orders and job losses were largely to blame. None of the European services PMIs is expected to come in above 50; Britain’s is pencilled in at 38.8. The two US measures, from ISM and Markit, are estimated at 58.7 and 58.9.

Other data today cover Swiss inflation, Italian fourth quarter GDP, ADP’s US employment change number and, tonight, Australian retail sales and balance of trade. For sterling the main event will be Chancellor Rishi Sunak’s budget speech, which follows Prime Minister’s Questions shortly after midday. Budget speeches almost never move the pound at the time of their delivery but they do help fashion attitudes towards it.