Tag: RBNZ

  • Risk Aversion Returns as US Tariff Fears Resurface, Dollar Recovers Late

    Risk Aversion Returns as US Tariff Fears Resurface, Dollar Recovers Late


    Geopolitical developments dominated global headlines last week, particularly surrounding peace negotiations over Russia’s invasion of Ukraine and evolving US-Ukraine relations. While US President Donald Trump’s tariffs took a backseat, concerns over their impact on consumer spending and economic growth resurfaced by the end of the week, triggering renewed risk aversion.

    Markets lacked clear direction for most of the week, with major assets struggling to gain momentum in either direction. However, risk sentiment soured late in the week as fresh worries emerged over the potential inflationary effects of tariffs, particularly on US consumers. This shift in tone could set the market narrative for the near term.

    Against this backdrop, Dollar initially struggled but recovered some ground by the week’s close, finishing as the third worst performer overall. The late-week risk-off mood helped Dollar stabilize, with Dollar Index showing potential for a rebound off key Fibonacci support if risk aversion deepens further.

    Euro finished as the second weakest currency, partly weighed down by disappointing PMI data. Hopes for a political boost from German election over the weekend could be short-lived, as renewed US tariff threats may quickly drag Euro lower again. The worst performer was Canadian Dollar, which faced additional pressure from concerns over trade and slowing economy.

    In contrast, Yen emerged as the strongest currency, benefiting from increasing speculation of an earlier-than-expected BoJ rate hike. Divergence in yields also provided support, as Japan’s JGB yields rose while US Treasury yields declined.

    Sterling and the Swiss Franc were the second and third strongest, respectively, as both benefited from uncertainty surrounding Euro. Australian and New Zealand Dollars ended mixed, weighed down by the late-week risk aversion. However, Kiwi ended up with a slight upper hand over Aussie.

    Stocks Slide as Consumer Confidence Plunges, Dollar Index Holds Key Support

    US stocks ended the week notably lower as earlier resilience turned into steep selloff on Friday. S&P 500, which had set a new record high, ended the week with -1.7% loss, while DOW and NASDAQ both fell -2.5%. DOW’s -700-point drop on Friday marked its worst trading day of the year, catching many investors off guard and raising concerns over broader market sentiment.

    At the heart of the selloff was the unexpected deterioration in consumer sentiment. The University of Michigan Consumer Sentiment Index for February was finalized at 64.7, significantly below January’s 71.7 and the preliminary reading of 67.8. This was the lowest level since November 2023, signaling growing unease among US households about economic conditions.

    Adding to market anxiety, inflation expectations surged. Households now expect inflation over the next year to rise to 4.3%, the highest since November 2023, up from 3.3% last month. Over the next five years, inflation expectations climbed to 3.5%, the highest level since 1995, compared to 3.2% in January.

    Some analysts attribute the drop in sentiment to uncertainty over US President Donald Trump’s policies, particularly the potential for inflationary effects from new tariffs. The University of Michigan noted that the deterioration in sentiment was led by the -19% drop in buying conditions for durable goods, as consumers fear tariff-driven price hikes. Additionally, expectations for personal finances and the short-run economic outlook fell by nearly -10%.

    However, there are differing views on the inflationary impact of tariffs. Some analysts argue that Trump’s tariff threats are more of a strategic negotiation tool aimed at broader geopolitical objectives, such as pressuring Canada and Mexico on fentanyl issues. If these concerns fade, inflation expectations could retreat, allowing consumer confidence to rebound.

    Technically, DOW’s steep decline and strong break of 55 D EMA (now at 43848.97) is clearly a near term bearish sign. However, current fall from 45054.36 are seen as the third leg of the corrective pattern from 45073.63 only. Hence, while deeper fall could be seen to medium term rising channel support (now at around 42530) or below, strong support should emerge around 41884.89 to complete the pattern and bring up trend resumption.

    However, decisive break of 41844.89 will complete a double top reversal pattern (45073.63, 45054.36). DOW would then be at least in correction to the up trend form 32327.20. That would open up deeper correction to 38.2% retracement of 32327.20 to 45054.36 at 40204.49, or even further to 38499.27 support. But then, this is far from being the base scenario at this point.

    For now, Dollar Index is still sitting above 38.2% retracement of 100.15 to 110.17 at 106.34. Near term risk aversion could help Dollar Index defend this support level, with prospect of a bounce from there. Firm break of 55 D EMA (now at 107.40) should bring stronger rally back towards 110.17 high. However, Decisive break below the 106.34 support would deepen the decline to 61.8% retracement at 103.98, even still as a correction.

    Yen Ends Week Strong as BoJ Might Hike Rates Again Sooner

    Yen ended last week as the best-performing currency, thanks to robust inflation data and hawkish remarks from BoJ officials. The rally briefly paused midweek after BoJ Governor Kazuo Ueda signaled readiness to intervene in the bond market, causing Japan’s 10-year JGB yield to retreat from its 15-year high. However, this setback proved temporary, as Yen quickly regained strength amid rising risk aversion and falling US Treasury yields.

    According to the latest Reuters poll, 65% of economists (38 out of 58) expect BoJ to raise rates from 0.50% to 0.75% in July or September. Among the 39 analysts who gave a specific month, 59% (23 respondents) chose July, while 15% (six analysts) expected a June hike. The remaining 10 analysts were evenly split between April and September.

    However, stronger-than-anticipated inflation could give BoJ further cause to pull the timetable forward. Last week’s data already showed core CPI surging more than expected to 3.2% in January, marking the fastest pace in 19 months. If consumer price pressures remain elevated, markets speculate that policymakers might prefer to act sooner rather than wait for the second half.

    The April 30 – May 1 policy meeting could stand out as an appropriate window for BoJ to act. By then, BoJ will have access to Shunto wage negotiation results and an updated economic outlook, providing the necessary justification for an earlier rate hike.

    USD/JPY’s extended decline last week suggests that rebound from 139.57 has already completed with three waves up to 158.86. Fall from 158.86 is now seen as the third leg of the pattern from 161.94.

    Deeper fall is expected as long as 150.92 support turned resistance holds, to 61.8% retracement of 139.57 to 158.86 at 146.32. Firm break there will pave the way back to 139.57. Meanwhile, break of 150.92 will delay the bearish case and bring some consolidations first.

    Any extended USD/JPY weakness should limit Dollar’s rebound. However, this alone shouldn’t be enough to push DXY below key fibonacci support at 106.34 mentioned above.

    AUD/NZD Reverses after RBA and RBNZ Rate Cuts

    Both RBA and RBNZ delivered rate cuts last week, with RBA lowering its cash rate by 25bps to 4.10% and RBNZ cutting by 50bps to 3.75%, in line with expectations.

    RBA maintained a cautious tone, with Governor Michele Bullock emphasizing “patience” before considering another cut. The accompanying statement warned against easing “too much too soon,” highlighting concerns that disinflation progress could stall and inflation could settle above the midpoint of the target range if policy is loosened aggressively.

    Australian economic data also reinforced RBA’s cautious stance, with strong job growth and elevated wage pressures supporting a measured pace of policy easing.

    Meanwhile, RBNZ delivered a more defined path for easing, with Governor Adrian Orr clearly ruling out further 50bps cuts barring an economic shock. Instead, the central bank has outlined two additional 25bps cuts in the first half of the year.

    In the currency markets, AUD/NZD saw a sharp decline, falling back toward its 55 D EMA (now at 1.1063). The key driver of this move is likely the perception that RBNZ is nearing the end of its rate-cutting cycle, while RBA has only just begun easing, leaving room for further reductions if economic conditions weaken.

    With the OCR at 3.75% already close to the neutral band, there is limited downside for RBNZ, while RBA at 4.10% has more room to cut rates. This policy divergence, particularly if Australia’s economy slows further due to trade tensions between US and China, could keep downward pressure on AUD/NZD in the near term.

    Technically, sustained trading below 55 D EMA should confirm rejection by 1.1177 resistance. Fall from 1.1173 would be seen as the third leg of the corrective pattern from 1.1177. Further break of near term channel support (now at 1.1029) would pave the way back to 1.0940 support next.

    EUR/USD Weekly Outlook

    Range trading continued in EUR/USD last week and outlook is unchanged. Initial bias remains neutral this week first. Price actions from 1.0176 are seen as a corrective pattern only. IN case of further rise, upside should be limited by 38.2% retracement of 1.1213 to 1.0176 at 1.0572. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

    In the bigger picture, focus stays on on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong rebound from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    In the long term picture, down trend from 1.6039 remains in force with EUR/USD staying well inside falling channel, and upside of rebound capped by 55 M EMA (now at 1.0929). Consolidation from 0.9534 could extend further and another rising leg might be seem. But as long as 1.1274 resistance holds, eventual downside breakout would be mildly in favor.



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  • Euro Briefly Dips on Soft PMI, CAD Shrugs Off Robust Retail Sales

    Euro Briefly Dips on Soft PMI, CAD Shrugs Off Robust Retail Sales


    Trading is rather subdued in the forex markets today, with most major pairs and crosses stuck within yesterday’s range. Loonie failed to react to significantly stronger-than-expected retail sales data. Euro dipped earlier following weak PMI reports, but selling pressure quickly fizzled out. Yen saw some volatility during the Asian session, initially weakening alongside Japanese bond yields after BoJ Governor Kazuo Ueda’s comments, but selling was short-lived.

    For the week so far, Yen remains the strongest performer, although it could now pause for consolidation after its recent rally. Sterling pound ranks second, followed by Aussie. On the weaker side, Euro has slipped to the bottom, just below Loonie and Dollar. However, the gap between the three remains tight, leaving room for shifts before the weekly close. Meanwhile, Swiss Franc and Kiwi are positioning in the middle.

    In Europe, at the time of writing, FTSE is up 0.02%. DAX is up 0.29%. CAC is up 0.52%. UK 10-year yield is up 0.0044 at 4.619. Germany 10-year yield is down -0.0478 at 2.492.Earlier in Asia, Nikkei rose 0.26%. Hong Kong HSI rose 3.99%. China Shanghai SSE rose 0.85%. Singapore Strait Times rose 0.06%. Japan 10-year JGB yield fell -0.0229 to 1.428.

    Canada’s retail sales surge in 2.5% mom Dec, but Jan set for pullback

    Canada’s retail sales jumped 2.5% mom to CAD 69.6B in December, far surpassing market expectations of 1.6% mom. Sales increased across all nine subsectors, with the strongest contributions from food and beverage retailers and motor vehicle and parts dealers.

    In volume terms, retail sales also rose 2.5% mom, indicating that the increase was not solely due to price effects.

    For Q4, retail sales climbed 2.4% qoq, marking the second consecutive quarterly gain. Adjusted for inflation, sales volumes rose 1.8% qoq.

    However, momentum may have slowed at the start of 2025. Advance estimate for January suggests retail sales declined by -0.4% mom.

    Eurozone PMI manufacturing rises to 47.3, but services falls to 50.7

    Eurozone Manufacturing PMI improved from 46.6 to 47.3 in February, a nine-month high. However, Services PMI declined to 50.7 from 51.3, dragging Composite PMI flat at 50.2, indicating near stagnant overall growth.

    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, highlighted that services sector price pressures remain elevated, creating complications for the ECB ahead of its next meeting. Persistent wage growth and rising input costs in manufacturing, driven by energy prices, add to inflationary risks.

    Regionally, France’s services sector led the slowdown, with business activity deteriorating at an accelerated pace since September. In contrast, Germany maintained modest growth, supported by expectations of greater political stability ahead of its federal elections.

    UK PMI composite dips to 50.5, stagflation dilemma for BoE

    UK’s PMI Manufacturing dropped from 48.3 to 46.4 in February, a 14-month low. PMI Services edged up slightly to 51.1 from 50.8, while Composite PMI dipped to 50.5 from 50.6, indicating minimal overall growth.

    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that business activity remained “largely stalled” for the fourth straight month, with job losses accelerating amid declining sales and rising costs. He cautioned that the combination of stagnant growth and mounting price pressures is creating a “stagflationary environment,” presenting a “growing dilemma” for BoE.

    A primary driver of inflationary pressure is the increase in firms raising prices to offset rising staff costs tied to the National Insurance hike and minimum wage increase announced in the autumn Budget. However, these same fiscal measures have also exacerbated job cuts, with employment falling at its fastest pace since the global financial crisis, excluding the pandemic period.

    UK retail sales rebound sharply by 1.7% mom in Jan

    UK retail sales volumes surged 1.7% mom in January, far exceeding market expectations of 0.3% m/m, marking a strong recovery from December’s -0.6% mom decline.

    This sharp rebound pushed monthly sales index levels to their highest since August 2024.

    However, the broader trend remains mixed. Over the three months to January 2025, sales volumes declined by -0.6% compared to the previous three months. On a year-over-year basis, sales volumes rose 1.4%, showing some improvement in spending patterns compared to early 2024.

    Despite the monthly rebound, UK retail sales volumes remain -1.3% below pre-pandemic levels from February 2020.

    BoJ’s Ueda pledges action against sharp JGB yield rise, Yen tumbles

    Yen pulled back sharply from its recent rally, along with steep fall in 10-year JGB yield from its 15-year high. The move came after BoJ Governor Kazuo Ueda reminded markets of the central bank’s commitment to curbing excessive yield volatility.

    In parliamentary comments, Ueda stated, “We expect long-term interest rates to fluctuate to some extent.”

    However, he cautioned that “when markets make abnormal moves and lead to a sharp rise in yields, we are ready to respond nimbly to stabilize markets.”

    The pledge to increase bond purchases, if necessary, knocked the 10-year JGB yield off its 15-year high

    Ueda declined to specify when BoJ might conduct emergency bond market operations, stating only that the central bank would closely monitor the market for signs of destabilization.

    Japan’s core CPI jumps to 3.2% in Jan, above expectations

    Japan’s inflation accelerated in January, with core CPI (ex-food) rising from 3.0% yoy to 3.2% yoy, surpassing expectations of 3.1% yoy and marking the fastest pace in 19 months, driven by higher rice and energy costs.

    This was also the third consecutive month of acceleration, with core CPI rebounding sharply from 2.3% yoy in October. Inflation has now remained at or above BoJ’s 2% target since April 2022.

    Core-core CPI (ex-food and energy) climbed to 2.5% yoy, up from 2.4% yoy, signaling broader price pressures beyond energy and food. Food prices, excluding perishables, surged 5.1% yoy, up from 4.4% yoy, driven by a 70.9% yoy spike in rice prices, the largest increase since data collection began in 1971. This sharp rise was attributed to supply shortages and higher production and transportation costs.

    Energy prices also saw a notable increase of 10.8% yoy, up from 10.1% yoy in December, as gasoline costs rose following government subsidy reductions. Meanwhile, services inflation slowed slightly to 1.4% yoy from 1.6% yoy.

    Headline CPI surged from 3.6% yoy to 4.0% yoy, a two-year high.

    Japan’s PMI improves, but business confidence hits lowest since 2021

    Japan’s PMI data for February showed slight improvements, with PMI Manufacturing rising from 48.7 to 48.9. Meanwhile, PMI Services edged up from 53.0 to 53.1. Composite PMI increased from 51.1 to 51.6, the highest in five months.

    According to Usamah Bhatti, Economist at S&P Global Market Intelligence, the “modest improvement” was driven by sustained growth in services, with firms crediting business expansion plans and improved sales.

    However, optimism about future business activity weakened, with confidence dropping to its lowest level since January 2021. Companies cited labor shortages, persistent inflation, and weak domestic economic conditions as major concerns.

    Employment growth slowed to its weakest pace in over a year, reflecting businesses’ caution about hiring amid economic uncertainty. Additionally, input price inflation remained elevated, similar to January’s historically high levels.

    RBA’s Bullock: More rate cuts possible, but patience needed

    At a parliamentary committee hearing today, RBA Governor Michele Bullock explained that this week’s 25bps rate cut was based on better-than-expected inflation data, weaker private demand, and wage growth aligning with forecasts.

    Also, she acknowledged that the board is mindful of timing, stating, “What’s also playing on the board’s mind is that the board also doesn’t want to be late, and arguably we were late raising interest rates on the way up.”

    While further easing remains on the table, Bullock emphasized the need for caution. “We are not pre-committed. We’re going to be data-driven on this and I think people just have to be patient,” she added.

    Deputy Governor Andrew Hauser echoed this sentiment, reinforcing the RBA’s wait-and-see approach. He remarked, “If we’re wrong and inflation moves more quickly downwards, you could celebrate that fact and policy will need to respond, but we’d rather wait and see than assume that’s what’s going to happen.”

    Australia’s PMI composite hits 6-month high, but business confidence dips

    Australia’s PMI data for February showed continued expansion in private sector activity, with Manufacturing PMI rising to from 50.2 to 50.6, its highest level in 27 months. Meanwhile, Services PMI edged up from 51.2 to 51.4, and Composite PMI ticked up from 51.1 to 51.2, both reaching six-month highs.

    According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, the latest figures indicate a “modest” but steady improvement in economic conditions, while growth was broad-based.

    However, business sentiment weakened to its lowest level since October 2024. This caution also affected pricing strategies, with businesses reluctant to fully pass on cost increases, leading to a slowdown in selling price inflation.

    RBNZ’s Conway: 50bps cut the clear choice, signs of economic turnaround emerging

    RBNZ Chief Economist Paul Conway revealed in a Reuters interview that the central bank considered both 25bps and 75bps rate cuts ahead of this week’s policy decision. But the bank ultimately concluded that a 50bps reduction “was the way to go” given the state of the economy and inflation.

    Conway pointed to recent data in manufacturing and services, indicating that some businesses may already be “starting to feel a bit of a turnaround.” However, he acknowledged that companies remain cautious.

    Regarding the labor market, Conway noted that employment trends typically lag economic activity. He added that”businesses need to have confidence that growth is returning and that growth will be sustained into the future before they start to think about employing someone.”

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0446; (P) 1.0475; (R1) 1.0532; More…

    Outlook in EUR/USD remains unchanged despite today’s mild dip. Consolidation from 1.0176 is still extending and intraday bias remains neutral. Stronger rebound might be seen but outlook will remain bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

    In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Trade Balance (NZD) Jan -486M 225M 219M 94M
    22:00 AUD Manufacturing PMI Feb P 50.6 50.2
    22:00 AUD Services PMI Feb P 51.4 51.2
    23:50 JPY CPI Y/Y Jan 4.00% 3.60%
    23:50 JPY CPI Core Y/Y Jan 3.20% 3.10% 3.00%
    23:50 JPY CPI Core-Core Y/Y Jan 2.50% 2.40%
    00:01 GBP GfK Consumer Confidence Feb -20 -22 -22
    00:30 JPY Manufacturing PMI Feb P 48.9 49 48.7
    00:30 JPY Services PMI Feb P 53.1 53
    07:00 GBP Retail Sales M/M Jan 1.70% 0.30% -0.30% -0.60%
    07:00 GBP Public Sector Net Borrowing (GBP) Jan -15.4B -20.5B 17.8B 18.1B
    08:15 EUR France Manufacturing PMI Feb P 45.5 45.3 45
    08:15 EUR France Services PMI Feb P 44.5 49 48.2
    08:30 EUR Germany Manufacturing PMI Feb P 46.1 45.6 45
    08:30 EUR Germany Services PMI Feb P 52.2 52.6 52.5
    09:00 EUR Eurozone Manufacturing PMI Feb P 47.3 47.1 46.6
    09:00 EUR Eurozone Services PMI Feb P 50.7 51.5 51.3
    09:30 GBP Manufacturing PMI Feb P 46.4 48.5 48.3
    09:30 GBP Services PMI Feb P 51.1 51 50.8
    13:30 CAD Retail Sales M/M Dec 2.50% 1.60% 0% 0.20%
    13:30 CAD Retail Sales ex Autos M/M Dec 2.70% 0.40% -0.70%
    14:45 USD Manufacturing PMI Feb P 51.3 51.2
    14:45 USD Services PMI Feb P 53 52.9
    15:00 USD Existing Home Sales M/M Jan 4.17M 4.24M
    15:00 USD Michigan Consumer Sentiment Index Jan F 67.8 67.8

     



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  • Sterling Unmoved by CPI Surprise, Gold to Try 3000 Again ahead of FOMC Minutes

    Sterling Unmoved by CPI Surprise, Gold to Try 3000 Again ahead of FOMC Minutes


    The forex markets remain rather indecisive today. Traders are paring back expectations for BoE rate cuts after UK inflation surged to a 10-month high. A March rate cut is now off the table, and markets are no longer fully pricing in two BoE cuts this year. However, this shift has provided only minimal support for the British pound, as broader market sentiment remains cautious.

    Meanwhile, Dollar is mildly firmer but lacks strong upside momentum. Traders are now focused on FOMC minutes, which are expected to reaffirm that Fed is in no rush to cut rates. Current Fed funds futures show a 55% probability that rates will remain at 4.25-4.50% through the first half of 2025, a view that is unlikely to change much without further clarity on President Donald Trump’s fiscal and trade policies.

    In the commodities market, Gold surged to a record high, approaching the critical 3000 psychological level for another attempt. This marks a key inflection point—a decisive break above 3,000 could pave the way to 61.8% projection of 1810.26 to 2789.92 from 2584.24 at 3189.66.

    However, failure to sustain gains above 3000 could lead to deeper pullback. Firm break 2876.93 support should set up correction back towards 2789.92 resistance turned support instead.

    In Europe, at the time of writing, FTSE is down -0.61%. DAX is down -1.16%. CAC is down -0.84%. UK 10-year yield is up 0.0696 at 4.629. Germany 10-year yield is up 0.058 at 2.558. Earlier in Asia, Nikkei fell -0.27%. Hong Kong HSI fell -0.14%. China Shanghai SSE rose 0.81%. Singapore Strait Times rose 0.22%. Japan 10-year JGB yield rose 0.0038 to 1.440.

    ECB’s Schnabel: Rate Cut Pause May Be Approaching

    ECB Executive Board member Isabel Schnabel suggested in an FT interview that the central bank is approaching a point where it “may have to pause or halt” rate cuts.

    While she refrained from making a firm prediction for upcoming policy meetings, she acknowledged that the ECB needs to “start that discussion”.

    Schnabel highlighted that the degree of monetary restriction “has come down significantly”, to the extent that policymakers can “no longer say with confidence” that ECB’s stance remains restrictive.

    She defended the ECB’s gradual and cautious approach, arguing that domestic inflation remains high, wage growth is still elevated, and energy price shocks continue to impact inflation expectations.

    ECB’s Panetta: Eurozone economic weakness more persistent than expected

    Italian ECB Governing Council member Fabio Panetta acknowledged that economic weakness in the Eurozone is proving “more persistent than we expected”, as the long-anticipated consumption-driven recovery has yet to materialize.

    After two consecutive quarters of stagnation, he noted that “tensions in the manufacturing sector, employment is giving signs of weakening”

    Panetta also highlighted the downside risks to inflation stemming from weak growth. However, he also noted that upside inflation risks remain, primarily from energy costs.

    UK CPI surges to 3.0%, highest since March 2024

    UK headline CPI accelerated to 3.0% yoy in January, up from 2.5% yoy and exceeding market expectations of 2.8% yoy. This marks the highest inflation level since March 2024, reinforcing concerns that price pressures remain persistent.

    Core inflation also surged, with CPI excluding energy, food, alcohol, and tobacco rising to 3.7% yoy, up from 3.2% yoy in December.

    Meanwhile, CPI goods inflation edged higher from 0.7% yoy to 1.0% yoy, while CPI services inflation climbed from 4.4% yoy to 5.0% yoy.

    RBNZ cuts by 50bps, signals further easing through 2025

    RBNZ cut the Official Cash Rate (OCR) by 50bps to 3.75%, as widely expected, while maintaining a clear easing bias.

    The central bank stated that “if economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.” According to the latest projections, the OCR is expected to decline to 3.1% by year-end and remain at that level until early 2028.

    RBNZ acknowledged that economic activity remains subdued, though it expects growth to recover in 2025, driven by lower interest rates encouraging spending. However, elevated global economic uncertainty is likely to weigh on business investment. The bank also noted that inflation is expected to be volatile in the near term, influenced by a weaker exchange rate and higher petrol prices.

    Regarding global risks, the RBNZ flagged concerns and warned that higher global tariffs could slow growth in key trading partners, dampening demand for New Zealand exports and weakening domestic economic momentum over the medium term.

    However, the impact on inflation is “ambiguous”, depending on factors such as trade diversion, supply-chain adjustments, and financial market reactions.

    Australian wages growth slow 0.7% qoq, pressures easing

    Australia’s wage price index rose 0.7% qoq in Q4, marking a slowdown from 0.9% qoq and missing expectations of 0.8% qoq. This matches the lowest quarterly growth since March 2022, reinforcing signs that wage pressures are easing, albeit still elevated.

    On an annual basis, wages increased 3.2% yoy, making it the slowest pace since Q3 2022. Private sector wage growth came in at 3.3% yoy, the weakest since Q2 2022. Public sector wages rose 2.8% yoy, falling below 3% for the first time since Q2 2023.

    BoJ’s Takata: Gradual policy shifts should continue beyond January hike

    BoJ Board Member Hajime Takata emphasized the need for the central bank to continue to “implement gear shifts gradually, even after the additional rate hike decided in January 2025”, to mitigate the risk of rising prices and financial market overheating.

    Takata noted in a speech today that as “positive corporate behavior” persists, BoJ should consider a “further gear shift” in policy.

    He highlighted three key risks that could drive prices above BoJ’s baseline scenario: a stronger wage-price cycle, inflationary pressures from domestic factors, and market volatility, especially in the exchange rates, stemming from a recovery in the US economy.

    Nevertheless, due to uncertainties surrounding the US economy and the challenge of identifying the neutral interest rate, Takata advocated for a “vigilant approach”.

    Japan’s trade deficit widens as imports surge, exports to China drop

    Japan’s trade deficit expanded sharply in January, reaching JPY -2.759T, the largest shortfall in two years, as imports surged 16.7% yoy, far exceeding the expected 9.3% yoy gain.

    Meanwhile, exports rose 7.2% yoy, falling slightly short of the 7.7% yoy forecast, with strong shipments to the U.S. (+18.1% yoy) offset by a -6.2% yoy decline in exports to China.

    On a seasonally adjusted basis, exports declined -2.0% mom to JPY 9.253T, while imports climbed 4.7% mom to JPY 10.109T, leading to a JPY -857B trade deficit.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.2587; (P) 1.2609; (R1) 1.2637; More…

    GBP/USD dips mildly today but stays in established tight range. Intraday bias remains neutral, and focus stays on 38.2% retracement of 1.3433 to 1.2099 at 1.2609. Rejection by this level will keep near term outlook bearish. Break of 1.2331 support will suggest that the rebound from 1.2099 has completed as a correction, and bring retest of 1.2099 low. However, firm break of 1.2609 will raise the chance of near term reversal, and target 61.8% retracement at 1.2923.

    In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD PPI Input Q/Q Q4 -0.90% 1.40% 1.90%
    21:45 NZD PPI Output Q/Q Q4 -0.10% 1.10% 1.50%
    23:50 JPY Machinery Orders M/M Dec -1.20% 0.30% 3.40%
    23:50 JPY Trade Balance (JPY) Jan -0.86T -0.24T -0.03T -0.22T
    00:30 AUD Wage Price Index Q/Q Q4 0.70% 0.80% 0.80% 0.90%
    01:00 NZD RBNZ Rate Decision 3.75% 3.75% 4.25%
    07:00 GBP CPI M/M Jan -0.10% -0.30% 0.30%
    07:00 GBP CPI Y/Y Jan 3.00% 2.80% 2.50%
    07:00 GBP Core CPI Y/Y Jan 3.70% 3.70% 3.20%
    07:00 GBP RPI M/M Jan -0.10% -0.10% 0.30%
    07:00 GBP RPI Y/Y Jan 3.60% 3.70% 3.50%
    07:00 GBP PPI Input M/M Jan 0.80% 0.70% 0.10% 0.20%
    07:00 GBP PPI Input Y/Y Jan -0.10% -0.50% -1.50% -1.30%
    07:00 GBP PPI Output M/M Jan 0.50% 0.20% 0.10% -0.20%
    07:00 GBP PPI Output Y/Y Jan 0.30% 0.10% 0.10% -0.10%
    07:00 GBP PPI Core Output M/M Jan 0.30% 0%
    07:00 GBP PPI Core Output Y/Y Jan 1.50% 1.50% 1.60%
    09:00 EUR Eurozone Current Account (EUR) Dec 38.4B 30.2B 27.0B 25.1B
    13:30 USD Building Permits Jan 1.48M 1.45M 1.48M
    13:30 USD Housing Starts Jan 1.37M 1.39M 1.50M
    19:00 USD FOMC Minutes

     



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  • Kiwi Wobbles After RBNZ Cut, Markets Eye UK CPI and FOMC Minutes

    Kiwi Wobbles After RBNZ Cut, Markets Eye UK CPI and FOMC Minutes


    New Zealand Dollar initially weakened following RBNZ’s 50bps rate cut today, but quickly regained ground as Governor Adrian Orr indicated that the pace of easing will slow in the coming months. Orr suggested that the central bank is likely to implement just more 25bps cuts, in April and May, provided that economic conditions unfold as expected. However, the Kiwi’s upside remains limited, as RBNZ revised its terminal rate forecast downward to 3.1% by year-end, slightly below November’s projection of 3.2%.

    Technically, we’d maintain the view that AUD/NZD’s choppy rise from 1.0940 is a corrective move. So upside should be limited by 1.1177 resistance to bring near term reversal. Break of 1.1071 support will argue that the pattern from 1.1177 has started the third leg, and should decline towards 1.0940 support next.

    Outside of NZD-driven moves, the broader forex market remains subdued, with a lack of major catalysts. Dollar is the weakest performer of the day so far, as the momentum from this week’s recovery has faded. Traders are now looking ahead to FOMC minutes, though they are unlikely to provide new insights, instead reaffirming that Fed remains cautious and in no hurry to cut rates again.

    British Pound is also under pressure, ranking as the second weakest currency, as investors await the release of UK CPI data. A hot inflation print could diminish expectations for a consecutive BoE rate cut in March, potentially offering some relief to the currency. Swiss franc rounds out the three weakest performers, showing broad softness.

    On the stronger side, New Zealand Dollar leads the market. Yen follows, benefiting from continued speculation over future BoJ policy hikes, while the Australian Dollar also holds firm. Euro and Canadian Dollar are positioning in the middle.

    In Asia, at the time of writing, Nikkei is down -0.38%. Hong Kong HSI is down -0.28%. China Shanghai SSE is up 0.54%. Singapore Strait Times is up 0.11%. Japan 10-year JGB yield is up 0.002 at 1.439. Overnight, DOW rose 0.02%. S&P 500 rose 0.24%. NASDAQ rose 0.07%. 10-year yield rose 0.072 to 4.544.

    RBNZ cuts by 50bps, signals further easing through 2025

    RBNZ cut the Official Cash Rate (OCR) by 50bps to 3.75%, as widely expected, while maintaining a clear easing bias.

    The central bank stated that “if economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.” According to the latest projections, the OCR is expected to decline to 3.1% by year-end and remain at that level until early 2028.

    RBNZ acknowledged that economic activity remains subdued, though it expects growth to recover in 2025, driven by lower interest rates encouraging spending. However, elevated global economic uncertainty is likely to weigh on business investment. The bank also noted that inflation is expected to be volatile in the near term, influenced by a weaker exchange rate and higher petrol prices.

    Regarding global risks, the RBNZ flagged concerns and warned that higher global tariffs could slow growth in key trading partners, dampening demand for New Zealand exports and weakening domestic economic momentum over the medium term.

    However, the impact on inflation is “ambiguous”, depending on factors such as trade diversion, supply-chain adjustments, and financial market reactions.

    Australian wages growth slow 0.7% qoq, pressures easing

    Australia’s wage price index rose 0.7% qoq in Q4, marking a slowdown from 0.9% qoq and missing expectations of 0.8% qoq. This matches the lowest quarterly growth since March 2022, reinforcing signs that wage pressures are easing, albeit still elevated.

    On an annual basis, wages increased 3.2% yoy, making it the slowest pace since Q3 2022. Private sector wage growth came in at 3.3% yoy, the weakest since Q2 2022. Public sector wages rose 2.8% yoy, falling below 3% for the first time since Q2 2023.

    BoJ’s Takata: Gradual policy shifts should continue beyond January hike

    BoJ Board Member Hajime Takata emphasized the need for the central bank to continue to “implement gear shifts gradually, even after the additional rate hike decided in January 2025”, to mitigate the risk of rising prices and financial market overheating.

    Takata noted in a speech today that as “positive corporate behavior” persists, BoJ should consider a “further gear shift” in policy.

    He highlighted three key risks that could drive prices above BoJ’s baseline scenario: a stronger wage-price cycle, inflationary pressures from domestic factors, and market volatility, especially in the exchange rates, stemming from a recovery in the US economy.

    Nevertheless, due to uncertainties surrounding the US economy and the challenge of identifying the neutral interest rate, Takata advocated for a “vigilant approach”.

    Japan’s trade deficit widens as imports surge, exports to China drop

    Japan’s trade deficit expanded sharply in January, reaching JPY -2.759T, the largest shortfall in two years, as imports surged 16.7% yoy, far exceeding the expected 9.3% yoy gain.

    Meanwhile, exports rose 7.2% yoy, falling slightly short of the 7.7% yoy forecast, with strong shipments to the U.S. (+18.1% yoy) offset by a -6.2% yoy decline in exports to China.

    On a seasonally adjusted basis, exports declined -2.0% mom to JPY 9.253T, while imports climbed 4.7% mom to JPY 10.109T, leading to a JPY -857B trade deficit.

    Looking ahead

    UK CPI is the main focus in European session. EUrozone will release current account. Later in the day, main focus is on FOMC minutes while US will also publish building permits and housing starts.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6335; (P) 0.6352; (R1) 0.6368; More…

    Intraday bias in AUD/USD stays neutral for consolidations below 0.6373 temporary top. Rebound from 0.6087 is seen as a correction to the fall from 0.6941. In case of another rise, upside should be limited by 38.2% retracement of 0.6941 to 0.6087 at 0.6413. On the downside, break of 0.6234 support will suggest that the rebound has completed as a correction, and turn bias back to the downside for retesting 0.6087 low. Nevertheless, sustained break of 0.6413, will pave the way back to 61.8% retracement at 0.6615.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6504) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD PPI Input Q/Q Q4 -0.90% 1.40% 1.90%
    21:45 NZD PPI Output Q/Q Q4 -0.10% 1.10% 1.50%
    23:50 JPY Machinery Orders M/M Dec -1.20% 0.30% 3.40%
    23:50 JPY Trade Balance (JPY) Jan -0.86T -0.24T -0.03T -0.22T
    00:30 AUD Wage Price Index Q/Q Q4 0.70% 0.80% 0.80% 0.90%
    01:00 NZD RBNZ Rate Decision 3.75% 3.75% 4.25%
    07:00 GBP CPI M/M Jan -0.30% 0.30%
    07:00 GBP CPI Y/Y Jan 2.80% 2.50%
    07:00 GBP Core CPI Y/Y Jan 3.70% 3.20%
    07:00 GBP RPI M/M Jan -0.10% 0.30%
    07:00 GBP RPI Y/Y Jan 3.70% 3.50%
    07:00 GBP PPI Input M/M Jan 0.70% 0.10%
    07:00 GBP PPI Input Y/Y Jan -0.50% -1.50%
    07:00 GBP PPI Output M/M Jan 0.20% 0.10%
    07:00 GBP PPI Output Y/Y Jan 0.10% 0.10%
    07:00 GBP PPI Core Output M/M Jan 0%
    07:00 GBP PPI Core Output Y/Y Jan 1.50%
    09:00 EUR Eurozone Current Account (EUR) Dec 30.2B 27.0B
    13:30 USD Building Permits Jan 1.45M 1.48M
    13:30 USD Housing Starts Jan 1.39M 1.50M
    19:00 USD FOMC Minutes

     



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  • Muted Forex Action as Traders Overlook Data, Await RBNZ Cut

    Muted Forex Action as Traders Overlook Data, Await RBNZ Cut


    Forex markets remained subdued today, with muted reactions to key economic data. Dollar held broadly higher as traders focused on the US-Russia peace talks, where both sides agreed to continue discussions on ending Russia’s invasion of Ukraine. However, meaningful progress is unlikely without direct involvement from Ukraine and European nations, keeping market uncertainty elevated.

    Canadian Dollar traded mixed following slightly stronger-than-expected core inflation data. Despite this, with headline CPI below 2% and CPI common just above 2%, BoC is still expected to gradually lower rates toward neutral levels.

    British Pound showed little reaction to strong UK labor market data, including strong wage growth. BoE Governor Andrew Bailey commented that the figures did not alter the central bank’s outlook, keeping rate expectations steady. Similarly, Euro ignored a notable improvement in German economic sentiment, which suggests the economy may finally be stabilizing.

    Australian Dollar remains supported following RBA’s cautious rate cut, with the central bank signaling that the easing cycle will proceed gradually and may not be as deep as previously expected.

    Looking ahead, RBNZ rate decision is the primary focus in the upcoming Asian session, where markets anticipate a 50bps rate cut, bringing the OCR down to 3.75%, moving closer to neutral levels. A key point of interest will be whether RBNZ signals a slowdown in the pace of easing, and traders will analyze economic projections for insights into the terminal rate.

    Technically, NZD/USD’s rebound from 0.5515 is seen as a correction to the fall from 0.6378. While another rise cannot be ruled out, upside should be limited by 38.2% retracement of 0.6378 to 0.5515 at 0.5848. Break of 0.5622 minors support will argue that the corrective bounce has completed, and bring retest of 0.5515 low.

    In Europe, at the time of writing, FTSE is up 0.16%. DAX is up 0.24%. CAC is up 0.31%. UK 10-year yield is up 0.032 at 4.570. Germany 10-year yield is up 0.012 at 2.504. Earlier in Asia, Nikkei rose 0.25%. Hong Kong HSI rose 1.59%. China Shanghai SSE fell -0.93%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield rose 0.0435 to 1.436.

    Canada’s CPI rises to 1.9% in Jan, core inflation ticks up

    Canada’s headline CPI increased from 1.8% yoy to 1.9% yoy in January, in line with expectations. The rise was driven by higher energy costs, particularly gasoline and natural gas, while GST/HST tax break introduced in December helped offset broader price pressures.

    Food prices fell -0.6% yoy, marking the first annual decline since May 2017, led by a record -5.1% yoy drop in restaurant food prices.

    On a monthly basis, CPI rose 0.1% mom, rebounding from December’s -0.4% mom decline.

    Core inflation strengthened, with CPI median rising to 2.7% yoy from 2.6% yoy, CPI trimmed increasing to 2.7% yoy from 2.5% yoy, and CPI common edging up to 2.2% yoy from 2.0% yoy.

    German ZEW jumps to 26 in Feb, optimism ahead of elections

    German ZEW Economic Sentiment Index surged from 10.3 to 26.0 in February, surpassing expectations of 20.2 and reflecting growing optimism about Germany’s economic outlook. Current Situation Index also showed a slight improvement, rising from -90.4 to -88.5, beating forecasts of -89.0.

    Eurozone ZEW Economic Sentiment rose from 18.0 to 24.2, falling short of the anticipated 25.4, while the Current Situation Index climbed by 8.5 points to -45.3.

    According to ZEW President Achim Wambach, the sharp rise in expectations is likely driven by hopes for a “new German government capable of action” ahead of the federal election, alongside expectations for a rebound in private consumption over the next six months.

    UK wages growth accelerates in Dec, payrolled employment rose 21k in Jan

    The latest UK labor market data presents a mixed picture, with payrolled employment rising by 21k (0.1% mom) in January, but the Claimant Count increasing by 22 to 1.75 million. Meanwhile, median monthly pay reached £2,467, reflecting a 5.7% yoy increase, reinforcing concerns about wage-driven inflation pressures.

    Looking at the broader employment trend, data for the three months to December showed that the employment rate edged up by 0.1 percentage point to 74.9%, while the unemployment rate also ticked higher by 0.1 percentage point to 4.4%.

    Wage pressures remain elevated, with average earnings including bonuses accelerating from 5.5% yoy to 6.0% yoy, and earnings excluding bonuses rising from 5.6% yoy to 5.9% yoy.

    RBA cuts rates, but warns against easing too much too soon

    RBA lowered its cash rate target by 25bps to 4.10%, as widely anticipated, but signaled a cautious approach to further easing.

    In its statement, the central bank emphasized that monetary policy will remain restrictive even after today’s reduction, warning that if rates are “eased too much too soon”, disinflation progress could stall and inflation could settle above the midpoint of the target range.

    RBA acknowledged that some upside risks to inflation “appear to have eased”, and disinflation may be unfolding “a little more quickly than earlier expected”. However, it maintained that “risks on both sides” remain.

    While today’s cut reflects the central bank’s confidence in recent progress, policymakers remain “cautious about the outlook”, reinforcing the idea that future easing will be data-dependent rather than pre-committed.

    In the new economic projections:

    • Headline CPI is now projected to rise to 3.7% by the end of 2025, before gradually easing to 2.8% by the end of 2026 (raised from 2.5%), and settling at 2.7% by mid-2027.
    • Trimmed mean CPI is expected to remain at 2.7% throughout 2025, 2026, and mid-2027.
    • Unemployment rate forecast was lowered to 4.2% across the projection horizon
    • Year-average GDP growth was revised down by 0.1% to 2.1% for 2025, while 2026 remains unchanged at 2.3%, with growth expected to hold steady at 2.3% into 2026/2027.
    • Cash rate assumptions suggest an average rate of 3.6% in 2025, followed by 3.5% in 2026.

    USD/CAD Mid-Day Outlook

    Daily Pivots: (S1) 1.4165; (P) 1.4179; (R1) 1.4199; More…

    USD/CAD is staying in tight range above 1.4150 temporary low and intraday bias remains neutral. Deeper decline will remain in favor as long as 1.4378 resistance holds. Fall from 1.4791 is correcting whole rise from 1.3418. Break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

    In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    03:30 AUD RBA Rate Decision 4.10% 4.10% 4.35%
    07:00 GBP Claimant Count Change Jan 22K 10.0K 0.7K -15.1K
    07:00 GBP ILO Unemployment Rate (3M) Dec 4.40% 4.50% 4.40%
    07:00 GBP Average Earnings Including Bonus 3M/Y Dec 6.00% 5.90% 5.60% 5.50%
    07:00 GBP Average Earnings Excluding Bonus 3M/Y Dec 5.90% 5.90% 5.60%
    10:00 EUR Germany ZEW Economic Sentiment Feb 26 20.2 10.3
    10:00 EUR Germany ZEW Current Situation Feb -88.5 -89 -90.4
    10:00 EUR Eurozone ZEW Economic Sentiment Feb 24.2 25.4 18
    13:30 USD Empire State Manufacturing Index Feb 5.7 -1 -12.6
    13:30 CAD CPI M/M Jan 0.10% 0.10% -0.40%
    13:30 CAD CPI Y/Y Jan 1.90% 1.90% 1.80%
    13:30 CAD CPI Media Y/Y Jan 2.70% 2.40% 2.40% 2.60%
    13:30 CAD CPI Trimmed Y/Y Jan 2.70% 2.60% 2.50%
    13:30 CAD CPI Common Y/Y Jan 2.20% 2.00% 2.00%
    15:00 USD NAHB Housing Index Feb 47 47

     



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  • Yen Rallies as Strong GDP Fuels BoJ Rate Hike Speculation

    Yen Rallies as Strong GDP Fuels BoJ Rate Hike Speculation


    Yen gained strength across the board after Japan’s Q4 GDP growth exceeded expectations, with both private consumption and capital investment rebounding. This development supports BoJ’s decision to hike in January and has fueled speculation that another rate increase could arrive sooner than expected.

    It’s now seen by some economists that the timing of the next BoJ move will largely hinge on the outcome of the Shunto wage negotiations, with markets eyeing a hike as early as May if wage growth matches 2024 levels.

    Beyond Japan, Aussie and Kiwi have maintained their footing, benefitting from a mildly positive risk-on sentiment, even as both the RBA and RBNZ are expected to cut interest rates this week. Meanwhile, Dollar continues to struggle, extending its losses from last week. Euro and Swiss Franc are also on the softer side, while Loonie and Sterling trade mixed.

    AUD/NZD would be a pair to watch this week with some bearish risks. Technically, choppy recovery from 1.0940 is likely just a corrective move. Hence, in case of another upside, upside should be limited by 1.1177 resistance. On the downside, firm break of the near term rising channel support (now at 1.1023) will argue that the recovery has already complete at 1.1141. Deeper decline should be seen back towards 1.0940 support as the third leg of the pattern from 1.1177.

    In Asia, at the time of writing, Nikkei is down -0.01%. Hong Kong HSI is down -0.45%. China Shanghai SSE is down -0.44%. Singapore Strait Times is up 0.49%. Japan 10-year JGB yield is up 0.0114 at 1.368.

    Japan’s Q4 GDP beats forecasts with 0.7% qoq growth

    Japan’s economy expanded by 0.7% qoq in Q4 2024, surpassing market expectations of 0.3% qoq and improving from the previous quarter’s 0.4% qoq rise. On an annualized basis, GDP grew 2.8%, significantly above 1.0% forecast and accelerating from Q3’s 1.7% pace.

    Private consumption, which accounts for over half of Japan’s economic output, edged up by 0.1% qoq, defying expectations of a -0.3% qoq contraction. However, it slowed sharply from the 0.7% qoq increase recorded in Q3, reflecting a cautious spending environment.

    Capital spending improved by 0.5% qoq, reversing the -0.1% qoq decline in Q3, but fell short of the anticipated 1.0% qoq rise.

    Price pressures continued climbing, with the GDP deflator inching up from 2.4% yoy to 2.8% yoy.

    Despite the strong Q4 performance, full-year 2024 GDP growth slowed sharply to 0.1%, a steep decline from the 1.5% expansion in 2023.

    NZ BNZ services rises to 50.4, stabilization rather than elevation

    New Zealand BusinessNZ Performance of Services Index climbed from 48.1 to 50.4 in January, marking a return to expansion after four consecutive months of contraction. While this signals some improvement, the index remains below its long-term average of 53.1.

    A closer look at the components reveals a mixed picture. Activity/sales saw a notable rebound, rising from 46.5 to 54.0, while new orders/business ticked up slightly from 49.4 to 50.0. Stocks/inventories also edged into expansion territory at 50.1, up from 48.9. However, employment continued to struggle, slipping from 47.4 to 47.1. Supplier deliveries showed minimal improvement, moving from 47.7 to 47.8.

    Despite the headline figure turning positive, sentiment remains weak. The proportion of negative comments rose to 61.9% in January, up from 57.5% in December and 53.6% in November. Respondents cited economic uncertainty and broader downturn concerns as key issues.

    BNZ’s Senior Economist Doug Steel noted that the PSI reflects “stabilization rather than elevation,” highlighting that while the upward move is a positive sign, the sector is far from robust growth.

    RBA, RBNZ rate cuts, FOMC minutes, and more

    The upcoming week is set to be highly eventful for global markets, with two major central bank meetings and a packed economic calendar. RBA and RBNZ are both expected to lower interest rates. Additionally, investors will scrutinize Fed’s January FOMC minutes to gauge the timing and conditions for policy shifts. Meanwhile, key economic indicators from the UK, Eurozone, Canada, and Japan will provide further insights into their economic trends.

    RBA is widely expected to cut interest rates by 25 bps to 4.10%, marking its first rate reduction in this cycle. The decision follows the latest Q4 trimmed mean CPI, which revealed stronger-than-expected disinflation. Market participants will closely analyze the accompanying Statement on Monetary Policy for clues on the outlook. Some analysts anticipate a steady quarterly pace of 25 bps cuts, which could bring the cash rate to a neutral level of 3.35% by the end of the year.

    RBNZ is expected to move more aggressively, with a 50 bps cut to 3.75%, as it seeks to transition its policy stance toward a neutral level of 2.50%-3.50%. However, with the rate approaching this estimated range, the central bank may soon opt for smaller rate cuts moving forward. Investors will carefully assess the updated Monetary Policy Statement to determine whether RBNZ signals a slowdown in its pace of easing and to gauge expectations for the terminal rate of this cycle.

    Fed’s January FOMC meeting minutes will provide additional insights into policymakers’ discussions on the policy outlook. It is well understood that Fed is in no rush to resume policy easing, given persistent inflation and other risks. However, investors will be looking for answers to key questions: What conditions would trigger a resumption of rate cuts? When does the Fed expect this to happen? Is a rate hike completely off the table?

    BoE’s rate path has been relatively uncertain in recent weeks. The stronger-than-expected Q4 UK GDP data has significantly reduced the likelihood of a back-to-back rate cut in March. However, this week’s UK employment, wage growth, CPI, retail sales, and PMI reports will be critical in shaping market expectations. If these indicators show resilience in the economy and inflation remains sticky, markets will likely fully revert to pricing in a gradual, one-cut-per-quarter approach.

    For Euro and DAX, German ZEW Economic Sentiment and Eurozone PMIs will be particularly important. If these data points confirm that Germany’s sluggish economy is finally starting to turnaround, it would provide a significant boost to investor sentiment and strengthen the case for continued DAX and Euro gains. Apart from central bank decisions, inflation data from Canada and Japan will also be closely watched.

    Here are some highlights for the week:

    • Monday: New Zealand BNZ services; Japan GDP; Eurozone trade balance.
    • Tuesday: RBA rate decision; UK employment; German ZEW economic sentiment; Canada CPI; US Empire state manufacturing, NAHB housing index.
    • Wednesday: New Zealand PPI; Japan trade balance, machine orders; Australia wage price index; RBNZ rate decision; UK CPI, PPI; Eurozone current account; US building permits and housing starts, FOMC minutes.
    • Thursday: Australia employment; Swiss trade balance; Germany PPI; Canada IPPI and RMPI; US jobless claims, Philly Fed survey.
    • Friday: New Zealand trade balance; Australia PMIs; Japan CP, PMIs; UK Gfk consumer confidence, retail sales; PMIs; Eurozone PMIs; Canada retail sales; US PMIs, existing home sales.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 151.83; (P) 152.49; (R1) 152.96; More…

    Intraday bias in USD/JPY stays neutral first. Strong support from 38.2% retracement of 139.57 to 158.86 at 151.49 would maintain near term bullishness. On the upside, break of 154.79 will revive the case that correction from 158.86 has completed at 150.29. Further rise should be seen to retest 158.86 high. However, break of 150.92 and sustained trading below 151.49 will raise the chance of trend reversal, and target 148.64 support instead.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:30 NZD Business NZ PSI Jan 50.4 47.9 48.1
    23:50 JPY GDP Q/Q Q4 P 0.70% 0.30% 0.30% 0.40%
    23:50 JPY GDP Deflator Y/Y Q4 P 2.80% 2.80% 2.40%
    04:30 JPY Tertiary Industry Index M/M Dec 0.10% 0.20% -0.30%
    04:30 JPY Industrial Production M/M Dec -0.20% 0.30% 0.30%
    10:00 EUR Eurozone Trade Balance (EUR) Dec 15.0B 12.9B
    13:15 CAD Housing Starts Jan 250K 231K

     



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  • NZD/USD advances to two-month peak, around mid-0.5700s amid weaker USD

    NZD/USD advances to two-month peak, around mid-0.5700s amid weaker USD


    • NZD/USD gains positive traction for the third straight day amid sustained USD selling.
    • The divergent Fed-RBNZ expectations warrant caution for aggressive bullish traders. 
    • Last week’s breakout above the 0.5700 mark supports prospects for additional gains.

    The NZD/USD pair attracts buyers for the third successive day on Monday and climbs to a two-month peak, around the 0.5750 area during the Asian session amid the prevalent US Dollar (USD) selling bias. 

    The global risk sentiment gets a minor lift from the latest optimism led by US President Donald Trump’s approach to ending the protracted Russia-Ukraine war. Apart from this, a delay in Trump’s reciprocal tariffs keeps the USD depressed near its lowest level since 17 touched on Friday and acts as a tailwind for the NZD/USD pair. 

    The Greenback is further undermined by Friday’s disappointing US Retail Sales, which dropped by the most in nearly two years in January. In fact, The US Census Bureau reported that Retail Sales declined by 0.9% during the reported month, worse than the decrease of 0.1% expected and the 0.7% increase (revised from 0.4%) in December. 

    That said, the growing acceptance that the Federal Reserve (Fed) would stick to its hawkish stance amid still-sticky inflation could help limit further USD losses. Apart from this, the increasing likelihood that the Reserve Bank of New Zealand (RBNZ) will deliver a third supersized rate cut later this month might cap the NZD/USD pair. 

    From a technical perspective, last week’s breakout through the 0.5700 round figure favors bullish traders and supports prospects for a further near-term appreciating move for spot prices. Hence, any corrective pullback might still be seen as a buying opportunity and remain limited ahead of the crucial RNNZ meeting on Wednesday.

    New Zealand Dollar FAQs

    The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.

    The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

    Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.

    The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

     



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  • Dollar Slides as Markets Cheer Tariff Delay, Kiwi Surges on Manufacturing Rebound

    Dollar Slides as Markets Cheer Tariff Delay, Kiwi Surges on Manufacturing Rebound


    Dollar’s selloff is accelerating as the week draws to a close, with investors continuing to react to the evolving trade policy stance from the White House. Wall Street posted broad gains overnight, as markets took relief in the fact that US President Donald Trump’s much-anticipated reciprocal tariff plan did not impose immediate trade restrictions. Instead, the administration will conduct a detailed review of tariff disparities before deciding on specific measures.

    Despite the optimism in US equities, risk-on sentiment was not fully carried over into Asian session. While Hong Kong stocks extended recent strong gains, other major indexes struggled for direction, reflecting lingering caution. Investors remain wary of how the tariff situation will unfold, particularly as Trump’s trade team begins its assessment of countries with large trade surpluses with the US. This process is expected to take weeks, leaving room for further volatility in global markets.

    The immediate focus now shifts to US retail sales data for January, which will provide fresh insights into consumer spending. Yet the figures are unlikely to have a significant impact on Fed expectations even with a major surprise. Fed has emphasized that its next move will be dictated by sustained trends rather than single data points. As a result, the Dollar’s downside pressure may persist, with market sentiment favoring risk assets.

    Among major currencies, New Zealand Dollar is leading the pack, buoyed by surprisingly strong manufacturing data. The economy is responding well to RBNZ’s aggressive rate cuts last year. While the central bank is still expected to deliver another 50bps reduction next week as the march to neutral continues, the resurgence in manufacturing could mean the central bank may not need to push rates into stimulatory territory.

    Technically, as NZD/USD rebounds, focus is now on 0.5701 resistance. Firm break there will resume the rise from 0.5515, as a correction to fall from 0.63780. Further rally should then be seen to 38.2% retracement of 0.6378 to 0.5515 at 0.5848.

    In Asia, at the time of writing, Nikkei is down -0.35%. Hong Kong HSI is up 2.48%. China Shanghai SSE is up 0.25%. Singapore Strait Times is down -0.17%. Japan 10-year JGB yield is up 0.0018 at 1.351. Overnight, DOW rose 0.77%. S&P 500 rose 1.04%. NASDAQ rose 1.50%. 10-year yield fell -0.0112 to 4.525.

    S&P 500 nears record high as Trump’s reciprocal tariff plan delays immediate action

    U.S. stocks closed higher overnight as President Donald Trump unveiled his long-awaited reciprocal tariff plan without enforcing immediate measures. The market responded favorably to the lack of fresh tariffs, easing concerns about an abrupt escalation in trade tensions. In turn, Treasury yields and the U.S. dollar moved lower, reflecting a shift in sentiment away from safe-haven assets.

    Trump’s directive instructs his administration to begin assessing tariff discrepancies between the US and its trading partner, including evaluation of non-tariff barriers. Also, the White House appears to be taking a targeted approach, prioritizing countries with large trade surpluses and high tariff rates on US exports.

    Howard Lutnick, Trump’s nominee for Commerce Secretary, will lead the study, with findings expected by April 1. This extended timeline gives markets some breathing room and suggests that while trade tensions remain a concern, abrupt disruptions are unlikely in the near term.

    Equities responded positively to the development, with S&P 500 rebounding strongly and edging closer to its all-time high of 6128.18. Technically, firm break of 6128.18 will resume the long term up trend, with 618% projection of 5119.26 to 6099.97 from 5773.31 at 6379.38 as next target.

    NZ BNZ manufacturing rises to 51.4, first expansion in nearly two years

    New Zealand’s manufacturing sector finally returned to expansion in January, with BusinessNZ Performance of Manufacturing Index surging from 46.2 to 51.4. This marks the first expansion in 23 months and the highest reading since September 2022. While the rebound is a positive sign for the economy, the index remains below its long-term average of 52.5, suggesting that the sector has yet to regain full strength.

    Encouragingly, all sub-indexes entered expansionary territory. Production saw a significant jump from 42.7 to 50.9. Employment also rose from 47.7 to 50.2. New orders climbed from 46.8 to 50.9, while finished stocks and deliveries improved to 51.9 and 51.7, respectively.

    BNZ’s Senior Economist Doug Steel highlighted the significance of the data, noting that the sector is “shifting out of reverse and into first gear.” He acknowledged the improvement as a relief after two difficult years but cautioned that the PMI still lags behind its historical average.

    USD/CAD Daily Outlook

    Daily Pivots: (S1) 1.4147; (P) 1.4229; (R1) 1.4274; More…

    USD/CAD’s fall from 1.4791 resumed by breaking through 1.4260 cluster support decisively. The development suggests that deeper corrective is underway and turn intraday bias to the downside for 1.3946 cluster support (61.8% retracement at 1.3942). For, risk will stay on the downside as long as 1.4378 resistance holds, in case of recovery.

    In the bigger picture, long term up trend is tentatively seen as resuming with breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:30 NZD Business NZ PMI Jan 51.4 45.9 46.2
    07:30 CHF PPI M/M Jan 0.10% 0.00%
    07:30 CHF PPI Y/Y Jan -0.90%
    10:00 EUR Eurozone Q/Q Q4 P 0.00% 0.00%
    13:30 CAD Manufacturing Sales M/M Dec 0.60% 0.80%
    13:30 CAD Wholesale Sales M/M Dec 0.40% -0.20%
    13:30 USD Retail Sales M/M Jan -0.20% 0.40%
    13:30 USD Retail Sales ex Autos M/M Jan 0.30% 0.40%
    13:30 USD Import Price Index M/M Jan 0.50% 0.10%
    14:15 USD Industrial Production M/M Jan 0.30% 0.90%
    14:15 USD Capacity Utilization Jan 77.80% 77.60%

     



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  • Dollar Muted Despite Strong PPI, Awaits Reciprocal Tariffs

    Dollar Muted Despite Strong PPI, Awaits Reciprocal Tariffs


    The currency markets are treading cautiously, with traders showing little reaction to stronger-than-expected US PPI data and a better-than-anticipated jobless claims report. Despite these inflationary signals, Dollar has struggled to gain further traction, as market participants hold their positions ahead of a highly anticipated announcement on US “reciprocal tariffs” from President Donald Trump. The announcement, expected later today in a news conference at the Oval Office, could provide a clearer picture of how US trade policy will evolve and its impact on global markets.

    While Fed’s restrictive stance on interest rates remains intact, this week’s hot CPI and PPI data suggest that inflation is proving more persistent than policymakers had hoped. Chair Jerome Powell has already reinforced that Fed is in no hurry to cut rates, and expectations for rate reductions in the first half of the year have now diminished. Market focus will now shift to upcoming US retail sales figures and additional comments from Fed officials, as traders assess how these data points might influence the central bank’s next policy moves.

    Sterling briefly found some boost after stronger-than-expected UK GDP data, which helped ease immediate concerns over a recession. However, the currency’s gains were short-lived, as investors remain cautious about the country’s sluggish economic outlook. While BoE has signaled a path of gradual easing, the market are more conservative than BoE guidance, with traders still pricing in just two rate cuts before year-end. Given the uncertainty around inflation and growth, the pace of BoE rate cuts will remain a key point of debate in the coming months.

    For the day, Swiss Franc leads currency gains as Japanese Yen follows behind, while Sterling holds firm too. On the weaker end, Australian and New Zealand Dollars are struggling. Dollar, despite its inflation-fueled rally earlier in the week, has lost momentum, as traders await further trade policy developments. Euro and Canadian Dollar are stuck in the middle of the pack.

    In Europe, at the time of writing, FTSE is down -0.56%. DAX is up 1.64%. CAC is up 1.40%. UK 10-year yield is down -0.045 at 4.493. Germany 10-year yield is down -0.050 at 2.431. Earlier in Asia, Nikkei rose 1.28%. Hong Kong HSI fell -0.20%. China Shanghai SSE fell -0.42%. Singapore Strait Times rose 0.21%. Japan 10-year JGB yield rose 0.0028 to 1.350.

    US PPI up 0.3% mom, 3.5% yoy in Jan, above expectations

    US PPI for final demand rose by 0.4% mom in January, exceeding market expectations of 0.2% mom.

    Final demand services increased by 0.3% mom, while final demand goods rose by 0.6% mom. Core PPI measure, which strips out volatile food, energy, and trade services, climbed 0.3% mom.

    On an annual basis, headline PPI accelerated to 3.5% yoy, surpassing forecasts of 3.2% yoy. Core PPI followed closely, advancing 3.4% yoy.

    US initial jobless claims falls to 213k vs exp 221k

    US initial jobless claims fell -7k to 213k in the week ending February 8, below expectation of 221k. Four-week moving average of initial claims fell -1k to 216k.

    Continuing claims fell -36k to 1850k in the week ending February 1. Four-week moving average of continuing claims fell -1k to 1872k.

    Eurozone industrial production falls -1.1% mom in Dec, EU down -0.8% mom

    Eurozone industrial production fell by -1.1% mom in December, significantly worse than the market expectation of -0.6% mom. The decline was driven by sharp contractions in intermediate and capital goods, while non-durable consumer goods provided some offset.

    Breaking down the data, intermediate goods production declined by -1.9% mom. The production of capital goods fell even further, down -2.6% mom. Durable consumer goods also posted a modest decline of -0.7% mom. On the other hand, energy production rose by 0.5% mom, and non-durable consumer goods surged by 5.1% mom.

    At the broader EU level, industrial production contracted by -0.8% mom, with Belgium (-6.8%), Portugal (-4.4%), and Austria (-3.3%) suffering the steepest declines. Meanwhile, Ireland (+8.2%), Luxembourg (+6.7%), and Croatia (+6.3%) posted strong rebounds.

    Swiss inflation softens again as CPI slows to 0.4% in Jan

    Switzerland’s CPI declined by -0.1% mom in January, in line with market expectations. Core CPI, which excludes fresh and seasonal products, energy, and fuel, also dropped by -0.1% mom. While domestic product prices ticked up by 0.1% mom, the steep -0.7% mom decline in imported product prices suggests that external factors continue to exert deflationary pressure on the Swiss economy.

    On a year-over-year basis, headline inflation eased from 0.6% yoy to 0.4% yoy, also matching expectations. However, core CPI edged higher to 0.9% yoy from 0.7% yoy. Domestic product inflation slowed from 1.5% yoy to 1.0% yoy, reflecting weaker demand and subdued price pressures in the local economy. Meanwhile, imported product prices remained in deflationary territory, improving slightly from -2.2% yoy to -1.5% yoy.

    UK GDP surprises to the upside, services lead the growth

    The UK economy outperformed expectations in December, with GDP expanding by 0.4% mom, significantly stronger than the 0.1% growth forecast. The services sector led the way, posting 0.4% monthly growth, while production output also rebounded, rising by 0.5%. However, the construction sector remained weak, contracting -0.2% mom.

    For Q4 as a whole, GDP increased by 0.1% qoq, defying expectations for a -0.1% contraction. Services grew by 0.2% in Q4, maintaining its position as the primary growth driver, while construction saw a moderate expansion of 0.5%. However, industrial production was a notable drag, shrinking by -0.8%.

    For full-year 2024, GDP increased by 0.8% compared to 2023, a modest but better-than-feared outcome given the economic uncertainties. Services expanded by 1.3%, cushioning the economy, while production sector contracted by -1.7%, and construction grew slightly by 0.4%.

    RBNZ survey shows rate cut expectations firm up

    The latest RBNZ Survey of Expectations showed a mixed shift in inflation forecasts, with short-term price pressures edging higher but long-term expectations trending lower. The survey, nonetheless, reinforces anticipation of further rate cuts.

    One-year-ahead inflation expectation rose from 2.05% to 2.15%, marking a slight uptick. However, two-year-ahead inflation expectations dipped from 2.12% to 2.06%, while five-year and ten-year expectations both declined by 11-12 basis points to 2.13% and 2.07%, respectively.

    RBNZ’s Official Cash Rate currently stands at 4.25% following 50bps reduction in last November. Survey respondents broadly expect another 50-bps cut to 3.75% by the end of Q1. The one-year-ahead OCR expectation also moved lower, falling 10bps to 3.23%, reinforcing the view that RBNZ will continue easing policy at a measured pace.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.2387; (P) 1.2435; (R1) 1.2493; More…

    Outlook in GBP/USD is unchanged and intraday bias stays neutral. Corrective rebound from 1.2099 could still extend higher. But upside should be limited by 38.2% retracement of 1.3433 to 1.2099 at 1.2609. On the downside, below 1.2331 minor support will turn bias to the downside for 1.2248 support. Firm break there will argue that the correction has completed and bring retest of 1.2099 low. However, decisive break of 1.2609 will raise the chance of near term reversal, and target 61.8% retracement at 1.2923.

    In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY PPI Y/Y Jan 4.20% 4.00% 3.80% 3.90%
    00:00 AUD Consumer Inflation Expectations Feb 4.60% 4.00%
    00:01 GBP RICS Housing Price Balance Jan 22% 27% 28% 26%
    02:00 NZD RBNZ Inflation Expectations Q1 2.06% 2.12%
    07:00 EUR Germany CPI M/M Jan F -0.20% -0.20% -0.20%
    07:00 EUR Germany CPI Y/Y Jan F 2.30% 2.30% 2.30%
    07:00 GBP GDP Q/Q Q4 P 0.10% -0.10% 0.00%
    07:00 GBP GDP M/M Dec 0.40% 0.10% 0.10%
    07:00 GBP Industrial Production M/M Dec 0.50% 0.30% -0.40% -0.50%
    07:00 GBP Industrial Production Y/Y Dec -1.90% -2.10% -1.80%
    07:00 GBP Manufacturing Production M/M Dec 0.70% 0.10% -0.30%
    07:00 GBP Manufacturing Production Y/Y Dec -1.40% -1.90% -1.20% -1.10%
    07:00 GBP Goods Trade Balance (GBP) Dec -17.4B -18.3B -19.3B -18.9B
    07:30 CHF CPI M/M Jan -0.10% -0.10% -0.10%
    07:30 CHF CPI Y/Y Jan 0.40% 0.40% 0.60%
    09:00 EUR ECB Economic Bulletin
    10:00 EUR Eurozone Industrial Production M/M Dec -1.10% -0.60% 0.20% 0.40%
    13:30 USD PPI M/M Jan 0.40% 0.20% 0.20% 0.50%
    13:30 USD PPI Y/Y Jan 3.50% 3.20% 3.30%
    13:30 USD PPI Core M/M Jan 0.30% 0.30% 0.00%
    13:30 USD PPI Core Y/Y Jan 3.60% 3.30% 3.50%
    13:30 USD Initial Jobless Claims (Feb 7) 213K 221K 219K 220K
    15:30 USD Natural Gas Storage -90B -174B

     



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  • CAD Steady After BoC Cut, DOW Nears Record Ahead of FOMC Hold

    CAD Steady After BoC Cut, DOW Nears Record Ahead of FOMC Hold


    Canadian Dollar is steady after BoC delivered its sixth consecutive rate cut, lowering its policy rate by 25bps to 3.00% as expected. The pace of easing has slowed from December’s 50bps reduction, reflecting a more measured approach as interest rate sits inside neutral zone. BoC explicitly warned of risks stemming from potential US tariffs, noting that a prolonged trade conflict could weigh on economic growth while simultaneously exerting upward pressure on inflation.

    Governor Tiff Macklem reinforced this concern in his press conference, describing US trade policy as a “major source of uncertainty,” with multiple possible outcomes. He also noted that tariffs reduce economic efficiency and cannot be offset by monetary policy alone, adding that with only one policy tool—the interest rate—the BoC cannot simultaneously combat “weaker output and higher inflation.”

    Attention now shifts to Fed, which is widely expected to hold its policy rate steady at 4.25–4.50% today. The key question is whether Fed will signal an extended pause in its rate-cutting cycle, either through its statement or Chair Jerome Powell’s press conference. Powell’s tone will be crucial in shaping market expectations—any indication of a prolonged pause could bolster the Dollar and weigh on risk assets, while a more dovish stance could encourage renewed risk-taking.

    In equities, DOW’s response to FOMC decision will be closely watched. The index has remained resilient despite this week’s tech sector volatility and is now approaching the record high of 45073.63.

    Decisive break above this level would confirm long-term uptrend resumption, and target 61.8% projection of 38499.27 to 45073.63 from 41844.89 at 45907.85. In this bullish scenario, risk-on sentiment could spread to other sectors and take S&P 500 and NASDAQ higher too.

    However, break of 44026.27 support will delay the bullish case and bring another fall to extend the consolidation from 45073.63 instead.

    Overall in the currency markets, Yen is trading as the strongest for the week so far, followed by Dollar and then Swiss Franc. Aussie is the worst, followed by Kiwi, and then Euro. Sterling and Loonie are positioning in the middle.

    BoC cuts rates to 3.00%, flags trade risks and ends QT

    BoC lowered its overnight rate target by 25bps to 3.00% as widely expected. In accompanying statement, the central bank warned that a prolonged trade conflict with the US could strain economic growth and drive inflation higher.

    BoC noted that “if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.” Policymakers emphasized that they will closely monitor trade developments and assess their impact on economic activity, inflation, and future policy decisions.

    The updated projections suggest a modest recovery in economic growth. Following an estimated 1.3% expansion in 2024, GDP is now expected to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. Inflation is projected to remain near the 2% target over the next two years, reinforcing expectations that BoC will maintain a cautious approach to policy easing.

    The central bank also announced plans to complete the normalization of its balance sheet by ending quantitative tightening. BoC will restart asset purchases in early March, adopting a gradual pace to ensure balance sheet stabilization while aligning with economic growth.

    German Gfk consumer sentiment falls to -22.4, recovery hopes fade

    Germany’s GfK Consumer Sentiment Index for February fell to -22.4, down from -21.4 and missing expectations of -20.5.

    In January, economic expectations dropped by 1.9 points to -1.6, while income expectations declined by 2.5 points to -1.1. The most concerning development came from willingness to buy, which fell 3 points to -8.4, its lowest level since August 2024,.

    Rolf Bürkl, consumer expert at NIM, noted that “the Consumer Climate has suffered another setback and starts gloomy into the new year.”

    The moderate optimism seen in late 2024 has faded, with Bürkl adding that the trend since mid-2024 has been stagnation at best. A key concern is inflation, which has recently picked up again, limiting prospects for a meaningful rebound in consumer demand.

    Australia’s CPI slows to 2.4% in Q4, trimmed mean CPI down to 3.2%

    Australia’s Q4 CPI rose just 0.2% qoq, same as the prior quarter, falling short of expectations of 0.4% yoy. Trimmed mean CPI also undershot forecasts, rising 0.5% qoq versus the expected 0.6% qoq.

    On an annual basis, headline CPI slowed from 2.8% yoy to 2.4% yoy, slightly below 2.5% yoy consensus. Trimmed mean CPI fell from 3.6% yoy to 3.2% yoy, missing 3.3% yoy estimate.

    These weaker inflation prints reinforce expectations that RBA may begin easing policy as early as its February 17-18 meeting.

    The decline in annual inflation was largely driven by steep drops in electricity prices (-25.2%) and automotive fuel (-7.9%). Goods inflation slowed sharply to 0.8% yoy, down from 1.4% yoy in Q3. Meanwhile, services inflation remained elevated at 4.3% yoy, though slightly lower than the 4.6% yoy in the previous quarter.

    In December, monthly CPI rebounded from 2.3% yoy to 2.5% yoy, matched expectations.

    RBNZ’s Conway sees cautious OCR path to neutral

    RBNZ Chief Economist Paul Conway stated in a speech today that Official Cash Rate at 4.25% remains “north of neutral”. The central bank estimates the neutral rate between 2.5% and 3.5%.

    “Easing domestic pricing intentions and the recent drop in inflation expectations help open the way for some further easing,” Conway added.

    However, Conway emphasized a cautious approach, noting that policymakers will “feel our way” as rates approach neutral. RBNZ will continuously reassess its neutral rate estimate, adjusting based on economic conditions.

    If neutral is underestimated, stronger-than-expected activity and inflation would signal a less restrictive policy than intended, prompting recalibration, he added.

    The central bank expects potential output growth to range between 1.5% and 2% annually over the next three years, reflecting a lower economic “speed limit.” This weaker outlook stems from sluggish productivity and reduced net immigration, limiting long-term economic capacity.

    USD/CAD Mid-Day Outlook

    Daily Pivots: (S1) 1.4367; (P) 1.4394; (R1) 1.4428; More…

    USD/CAD rebounded notably today but stays in range below 1.4516 short term top. Intraday bias remains neutral and more consolidations could be seen. Further rally is expected as long as 1.4260 support holds. On the upside, firm break of 1.4516 will resume larger up trend to 1.4667/89 key resistance zone. Nevertheless, firm break of 1.4260 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.4235) and below.

    In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BoJ Meeting Minutes
    00:30 AUD Monthly CPI Y/Y Dec 2.50% 2.50% 2.30%
    00:30 AUD CPI Q/Q Q4 0.20% 0.40% 0.20%
    00:30 AUD CPI Y/Y Q4 2.40% 2.50% 2.80%
    00:30 AUD RBA Trimmed Mean CPI Q/Q Q4 0.50% 0.60% 0.80%
    00:30 AUD RBA Trimmed Mean CPI Y/Y Q4 3.20% 3.30% 3.50% 3.60%
    05:00 JPY Consumer Confidence Jan 35.2 36.5 36.2
    07:00 EUR Germany GfK Consumer Sentiment Feb -22.4 -20.5 -21.3 -21.4
    09:00 CHF UBS Economic Expectations Jan 17.7 -20
    09:00 EUR Eurozone M3 Money Supply Y/Y Dec 3.50% 4.10% 3.80%
    13:30 USD Goods Trade Balance (USD) Dec P -122.1B -105.4B -102.9B -103.5B
    13:30 USD Wholesale Inventories Dec P -0.50% 0.10% -0.20% -0.10%
    14:45 CAD BoC Rate Decision 3.00% 3.00% 3.25%
    15:30 CAD BoC Press Conference
    15:30 USD Crude Oil Inventories   2.2M -1.0M
    19:00 USD Fed Rate Decision 4.50% 4.50%
    19:30 USD FOMC Press Conference

     



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  • Kiwi Eases as NZ CPI Backs RBNZ 50bps Cut, Dollar Unmoved by Trump’s Continuous Tariff Talks

    Kiwi Eases as NZ CPI Backs RBNZ 50bps Cut, Dollar Unmoved by Trump’s Continuous Tariff Talks


    New Zealand Dollar softened mildly today as Q4 inflation data reinforced the case for continued monetary easing by RBNZ. The central bank has ample room to swiftly bring interest rate from the current 4.25% to neutral, with inflation staying at around mid-point of 1-3% target range for the second straight quarter.

    Another 50bps rate cut on February 19 should be solidified. However, beyond this, the scale further rate reductions by RBNZ will depend heavily on domestic disinflationary progress, especially in non-tradeable prices, as the effects of falling tradeable prices fade.

    Elsewhere, Dollar’s pull back this week have slowed, but it has yet to stage a convincing recovery. President Donald Trump’s ongoing rhetoric on tariffs continued to draw attention but had little immediate impact on markets. Trump reiterated yesterday his intention to impose a 10% tariff on China, accusing it of enabling fentanyl shipments through Canada and Mexico to the US. He also repeated his threat to target EU with tariffs, calling it the “only way” to achieve trade “fairness”. Markets, however, appeared unfazed, awaiting concrete actions to back Trump’s statements.

    Key dates for tariff announcements include February 1, when decisions on 25% tariffs for Canada and Mexico and 10% tariffs on China are expected. For other countries, tariff measures may be delayed until federal trade reviews conclude on April 1. With no immediate actions, Trump’s remarks seem more rhetorical than actionable.

    In terms of weekly performance so far, Dollar remains the weakest major currency, followed by Yen and Swiss Franc, reflecting a risk-on sentiment across US and European markets. Kiwi continues to lead gains despite today’s pullback, with Euro and Sterling following suit. Aussie and Loonie are mixed in middle positions.

    Technically, a short term bottom is formed at 0.5540 in NZD/USD, just ahead of 0.5511 (2022 low). More consolidations would be seen with risk of stronger recovery. But as long as 55 D EMA (now at 0.5751) holds, larger down trend is expected to resume through 0.5511/40 sooner rather than later. Nevertheless, strong break of 55 D EMA will bring further rebound to 38.2% retracement of 0.6378 to 0.5540 at 0.5860, as the corrective pattern lengthens.

    ECB’s Knot supports near-term rate cuts, not convinced of of stimulus mode

    Dutch ECB Governing Council member Klaas Knot expressed agreement with market expectations for rate cuts at the January and March meetings, saying he is “pretty comfortable” with them. However, he added it is “too early to comment” on further cuts beyond March.

    “As long as the incoming data is in line with our projected return of inflation to target later this year then I think there is little obstacle to making another rate cut,” Knot said. “To change my mind for next week, it’s rather unlikely.”

    Knot reiterated ECB’s trajectory toward a neutral policy stance. But he emphasized, “I’m not convinced yet that we need to go into stimulative mode as well.”

    He expressed optimism that recent inflation data is “encouraging”. “It confirms the broad picture that we will return to target in the remainder of the year, and hopefully the economy will also finally recover a bit,” he added.

    However, Knot flagged risks posed by US trade policies, describing punitive tariffs as a “clear downside risk on the horizon.”

    New Zealand CPI unchanged at 2.2% yoy, non-tradeable pressures persist

    New Zealand’s CPI rose 0.5% qoq in Q4 2024, in line with expectations, as tradeable inflation increased 0.3% qoq and non-tradeable inflation rose 0.7% qoq. Annually, CPI was unchanged at 2.2% yoy, slightly exceeding the anticipated 2.1% yoy. This marks the second consecutive quarter that inflation has stayed within RBNZ’s target range of 1% to 3%.

    The data highlights diverging trends within inflation components. Non-tradeable inflation, which reflects domestic demand and supply conditions and excludes foreign competition, stood at 4.5% yoy, highlighting persistent internal price pressures. Tradeable inflation, influenced by global factors, recorded a -1.1% yoy decline.

    Rent prices were the largest contributor to the annual CPI increase, rising 4.2% and accounting for nearly 20% of the overall 2.2% gain. Lower petrol prices, down -9.2% yoy, offset some of the upward momentum, with CPI excluding petrol increasing 2.7% yoy.

    Australia’s Westpac Leading Index falls to 0.25%, signals gradual growth pickup

    Westpac Leading Index for Australia dipped slightly in December, moving from 0.33% to 0.25%. Westpac noted that while the growth signal remains modest, it reflects a marked improvement from the consistently negative and below-trend readings observed over the past two years. This uptick hints at a gradual lift in economic momentum through the first half of 2025.

    Westpac forecasts GDP growth to improve steadily over the course of 2025, projecting a year-end expansion of 2.2%—a notable recovery from the weak 0.8% growth recorded in the year to September 2024. However, the bank noted that while this represents progress, it remains below the economy’s long-term potential.

    Westpac highlighted that recent improvements in the Leading Index coincide with mixed signals on broader economy. A key concern for RBA is the labor market, where the “rebalancing” stalled in H2 2024.

    “A further slowdown in underlying measures of inflation could still see the Bank ease in February or April but we suspect the RBA will need to be more comfortable about some of these risks before it is prepared to begin easing,” Westpac noted.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6224; (P) 0.6257; (R1) 0.6305; More…

    Intraday bias in AUD/USD stays neutral for the moment. With 0.6301 resistance intact, consolidations from 0.6130 should be relatively brief, and further decline is expected. Break of 0.6130 will resume the fall from 0.6941. However, firm break of 0.6310 will turn bias back to the upside for stronger rebound to 55 D EMA (now at 0.6352), and possibly above.

    In the bigger picture, down trend from 0.8006 (2021 high) is resuming with break of 0.6169 (2022 low). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806, In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6545) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD CPI Q/Q Q4 0.50% 0.50% 0.60%
    21:45 NZD CPI Y/Y Q4 2.20% 2.10% 2.20%
    00:00 AUD Westpac Leading Index M/M Dec 0.00% 0.10%
    07:00 GBP Public Sector Net Borrowing (GBP) Dec 17.8B 13.7B 11.2B 11.8B
    13:30 CAD Industrial Product Price M/M Dec 0.80% 0.60%
    13:30 CAD Raw Material Price Index Dec 0.40% -0.50%

     



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  • Greenback Eases Ahead of Trump’s Executive Actions, Bitcoin Takes Leads and Hits New Record

    Greenback Eases Ahead of Trump’s Executive Actions, Bitcoin Takes Leads and Hits New Record


    Dollar is trading slightly lower today as markets await Donald Trump’s inauguration as the 47th US President. Attention is focused on his inaugural speech, expected to confirm his policy priorities. However, the real market-moving event is likely to be the series of executive actions Trump has promised to enact immediately.

    Over 200 directives are anticipated, including legally binding executive orders and proclamations, with particular interest in measures affecting tariffs and deregulations in sectors like energy and cryptocurrencies.

    One key area of focus is Trump’s potential tariff policies, which would surely reshape US trade relationships with allies and adversaries and impact global market. Deregulation efforts, spanning traditional energy sectors to the fast-growing cryptocurrency industry, are also expected to influence investor sentiment.

    Meanwhile, Bitcoin has reached a new all-time high, reflecting the renewed bullish sentiment in cryptocurrencies. Technically, next near term target is 61.8% projection of 49008 to 108368 from 89127 at 125812. Outlook will stay bullish as long as 89127 support holds, even in case of pull back.

    While Trump’s inauguration and executive actions are dominating headlines, global markets are also preparing for several other key events. BoJ is widely expected to raise its policy rate. UK employment data will provide insight into the labor market’s response to the Autumn Budget. Inflation data from Canada and New Zealand will help shape monetary policy projections of BoC and RBNZ. PMI data from major economies will round out the week’s events.

    ECB’s Holzmann: January rate cut not as certain with elevated inflation risks

    Austrian ECB Governing Council member Robert Holzmann expressed skepticism over a potential rate cut at ECB’s upcoming January meeting. In an interview with Politico, Holzmann stated, “A cut is not a foregone conclusion for me at all,” emphasizing his commitment to approaching the discussion with an “open mind.”

    Holzmann highlighted that ECB decisions are fundamentally data-driven and noted that inflation remained “well above” 2% in December, with January figures expected to reflect similar levels. He cautioned that “cutting interest rates when inflation rises faster than anticipated, even temporarily, risks hurting credibility.”

    As a known policy hawk, Holzmann also revealed increased doubts about inflation settling around ECB’s 2% target by the end of the year. He cited unexpected developments since the December decision, including faster-than-expected depletion of gas reserves due to colder weather, the effective closure of the Ukraine gas transit, and the risks of persistently high energy prices.

    China maintains LPR as offshore Yuan recovers ahead of key support

    China’s central bank maintained its benchmark lending rates unchanged on Monday. The one-year loan prime rate was steady at 3.1%, while the over-five-year LPR, which influences mortgage rates, remained at 3.6%.

    The offshore Yuan strengthened notably against the Dollar, continuing to draw support from a a key long-term level. This comes despite market speculation that China might allow Yuan to weaken further to counteract the economic effects of new tariffs introduced under Donald Trump’s presidency.

    A weaker currency would bolster export competitiveness by making Chinese goods more affordable internationally. However, Beijing faces a dilemma: while a controlled depreciation could help exporters, an uncontrolled fall could lead to heightened volatility in domestic financial markets and reduced investor confidence.

    Acknowledging these risks, PBOC Governor Pan Gongsheng reaffirmed the central bank’s commitment to exchange rate stability last week, stating, “We will resolutely prevent the risk of the exchange rate overshooting, ensuring that the Yuan exchange rate remains generally stable at a reasonable, balanced level.”

    Technically, a short term top should be confirmed at 7.3694 in USD/CNH with today’s dip. But it’s early to call for bearish reversal as long as 55 D EMA (now at 7.2797) hits. Further rally remains in favor through 7.3745 (202 high) to resume the long term up trend.

    Nevertheless, firm break of 55 D EMA should bring deeper pull back to 38.2% retracement of 6.9709 to 7.3694 at 7.2172, which is close to 55 W EMA (now at 7.2097) even just as a correction to rise from 6.9709.

    From BoJ to inflation data and PMIs, global markets have more to focus on than Trump

    While the inauguration of Donald Trump dominates the headlines in US markets, global investors are turning their attention to a week packed with pivotal high-impact economic events that would provide crucial clues about the monetary policy paths of key economies.

    BoJ’s upcoming meeting is a top priority for global markets. After repeated signals from Governor Kazuo Ueda and other top officials, markets should be well-prepared for a 25bps rate hike, raising the policy rate to 0.50%. However, beyond the rate decision, the focus will shift to BoJ’s updated economic projections and policy guidance.

    While Ueda is expected to remain cautious about committing to a specific timeline for normalization, he may strike a more optimistic tone regarding wage growth, based on reports from branch managers. Additionally, BoJ could raise inflation forecasts in its quarterly outlook, both of which would add hawkish tones to the meeting.

    In the UK, attention is squarely on employment data, which will shed light on the labor market’s response to the government’s Autumn Budget. The markets are already pricing in over 75 basis points of BoE rate cuts in 2025. Meanwhile, IMF is projecting an even deeper 100bps reduction. The strength of the labor market will play a pivotal role in determining the scale of monetary easing this year, making this release a key driver for Sterling sentiment.

    Inflation data from Canada and New Zealand also hold significant importance. In Canada, BoC has indicated that the pace of rate reductions will slow, but uncertainty remains over the timing of pauses. A Reuters poll suggests an 80% chance of a 25bps cut on January 29, following December’s larger 50-bps move. CPI data will either reinforce or challenge this expectation.

    Meanwhile, New Zealand’s Q4 inflation report is expected to show further easing in price pressures, consistent with RBNZ’s forecasts. If the trend persists, RBNZ could deliver another 50bs rate cut at its February meeting

    Other data to watch this week include Germany’s ZEW Economic Sentiment Index and PMI reports from several major economies. These releases will provide additional context on global economic momentum and inform central bank decisions in the months ahead.

    Here are some highlights for the week:

    • Monday: Japan machine orders, tertiary industry index; Germany PPI; Swiss PPI; BoC business outlook survey.
    • Tuesday: New Zealand BNZ services; UK employment; Germany ZEW economic sentiment; Canada CPI.
    • Wednesday: New Zealand CPI; UK public sector net borrowing: Canada IPPI and RMPI.
    • Thursday: Japan trade balance; Canada retail sales; US jobless claims.
    • Friday: Australia PMIs; Japan CPI, PMIs, BoJ rate decision; Eurozone PMIs; UK PMIs; Canada new housing price index; US PMIs, US existing sales.

    EUR/USD Daily Outlook

    Daily Pivots: (S1) 1.0247; (P) 1.0289; (R1) 1.0313; More…

    EUR/USD recovers mildly today but stays in the middle of near term range above 1.0176. Intraday bias stays neutral and outlook remains bearish with 1.0435 resistance intact. On the downside, break of 1.0176 will resume the fall from 1.1213 and target 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. However, firm break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Machinery Orders M/M Nov 3.40% -0.70% 2.10%
    00:01 GBP Rightmove House Price Index M/M Jan 1.70% -1.70%
    01:00 CNY 1-y Loan Prime Rate 3.10% 3.10% 3.10%
    01:00 CNY 5-y Loan Prime Rate 3.60% 3.60% 3.60%
    04:30 JPY Tertiary Industry Index M/M Nov -0.30% 0.10% 0.30% 0.10%
    04:30 JPY Industrial Production M/M Nov F -2.20% -2.30% -2.30%
    07:00 EUR Germany PPI M/M Dec -0.10% 0.30% 0.50%
    07:00 EUR Germany PPI Y/Y Dec 0.80% 1.10% 0.10%
    07:30 CHF PPI M/M Dec 0.00% 0.20% -0.60%
    07:30 CHF PPI Y/Y Dec -0.90% -1.50%
    15:30 CAD BoC Business Outlook Survey

     



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