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Fundamental Morning Wrap: Kiwi gets Pounded as EUR & JPY become dessert

A morning look across institutional research shows a shift in focus, with previous hot potatoes, EUR & JPY still staying on the menu but pushed back from the main course to desert. GBP´s decline and the BoE minutes today are in focus, while last night's speech from RBNZ Governor Wheeler has proven especially popular with the analyst community.


Gareth Barry and Geoffrey Yu of UBS note that NZD was at the centre of overnight attention after RBNZ Governor Wheeler appeared to talk down the currency, noting that “the 60 pip drop in NZD/USD was the result of a handful of carefully-chosen phrases, delivered in the correct sequence, with the correct emphasis. Further, they feel that an interest rate designed to purely weaken the currency is still off limits and they recommend staying short AUD/NZD. Greg Gibbs of RBS builds on this view, noting that following Governor Wheeler´s speech, NZD is no longer "fair game". Geoffrey Kendrick, who yesterday issued a buy NZD/USD note, comments that last night's speech may have sent markets second guessing whether the bank will now start FX intervention.


Derek Halpenny of the Bank of Tokyo Mitsubishi UFJ notes that todays MPC minutes show that the pound remains vulnerable from the perception of the BoE wishing for a weaker pound and accepting higher inflation. Meanwhile ING analysts bite that following this mornings data, the UK labour market is in rude health, in stark contrast to the GDP numbers published by the ONS. Emmanuel Ng of OCBC Bank notes that the usual downgrade speculation will likely re-emerge following the BoE minutes today, with investors remaining cautious.

Nomura strategists Geoffrey Kendrick, Andy Chaytor and economist Philip Rush question whether Gilts could follow GBP is sharply selling off. Kit Juckes of SocGen comments, “GBP/USD remains a clear medium-term sell. It is frustrating that a weak pound adds more to the decline in real incomes than it does to help exports, but the MPC and the Chancellor clearly welcome currency weakness and while market participants are bearish, I am not sure they have placed a big GBP short bet yet.”


Danske Bank analysts note that EUR/USD is back above the 1.3400 handle on the back of rising risk appetite this morning, and they feel that the Fed minutes this evening may have the potential to kick some volatility back into the market again. Marc Chandler of Brown Brothers Harriman notes that European Auto Sales have plummeted, but a divergence in quality is emerging, with high end manufacturers reporting increased sales. Meanwhile, Emmanuel Ng of OCBC Bank comments that supportive comments from the ECB´s Noyer provided an additional lift to EUR but he urges caution with the Italian elections around the corner. Kit Juckes of SocGen comments, “The market is in a state of increasing anticipation ahead of Italian elections, which remain too close to call. A Bersani/Monti win could see EUR/USD return to the top of its range, a Berlusconi win will test nerves, but today the range will hold.”


ING analysts note forecasts from the Bank that USD/JPY will hit 100 by the end of the year while Emmanuel Ng of OCBC Bank comments that the nomination of the BOJ governor has been delayed by a week, fanning talk of discord between the PM and the Finance Minister over the choice of candidates. Derek Halpenny of the Bank of Tokyo Mitsubishi UFJ suspects that the pair could see a reactionary dip in the months following the upcoming appointments, as markets gradually become disappointed in their lack of promised aggression. He suspects we could see a dip below 90 in coming months. This sentiment, he feels is supported by comments from Yoshihisa Morimoto – a BOJ policy board member – who stated that the BOJ will be implementing unprecedented policy easing this year – a suggestion that the planned increase in the APP may already be aggressive enough. Kit Juckes of SocGen comments that Japan posted an improvement in its trade balance in january, writing, “which owes little to the yen's fall (it's far too soon for that to be a reason for better export performance) but is encouraging all the same.”

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