Forex Daily Outlook

Currency and rates markets remain patient ahead of Fed Chair Yellen’s semi-annual testimony to the Senate Banking panel today.

Outlook for USD pairs

The USD remains in a period of consolidation until we get clearer guidance from the Fed. Yellen may provide that guidance, but the forum for announcing policy changes remains FOMC meetings.

US rates drifted lower yesterday due to a modest decline in US stocks, and as partial US economic data softened more than expected (January home sales, February Dallas Fed and January Chicago Fed activity indices). Investors also bought treasuries on a still-unresolved (but more-promising) Greek political situation. Greece’s four-month loan extension remains subject to the troika ratifying the list of reforms provided by the Hellenic government -we should hear some news in the next 24 hours.

Outlook for EUR pairs

EUR/USD drifted lower after the USD modestly firmed and the February German IFO survey modestly disappointed expectations of an improvement. AUD/EUR remains in a tight range and we anticipate this pattern to remain. Greece’s four-month loan extension remains subject to the troika ratifying the list of reforms provided by the Hellenic government; we expect some news in the next 24 hours.

Outlook for GBP pairs

GBP/USD has outperformed yesterday despite a softer than expected February UK Confederation of British Industry retail sales survey, which showed retail volumes plunged in Q1.  Reports by the UK National Housing Federation that the UK is not building enough homes may have added to the higher finish in UK swaps and GBP. Perception that Greece’s political situation is improving is positive for GBP given the large two-way trade between the UK and the Eurozone (Eurozone exports account for 8.0% of UK GDP). Given the BoE’s more upbeat assessment of the UK economy detailed in their February quarterly Inflation Report, we remain positive on the outlook for GBP and somewhat bearish on EUR/GBP.

Outlook for AUD pairs

AUD/USD declined 0.5% yesterday  as base metal and oil commodity prices continued to weaken. The USD was modestly firmer, and local participants wait for direction from Fed chair Yellen’s semi-annual testimony and Thursday’s Australian Q4 capex survey. Both events will be important for Australian rates and the AUD.

Outlook for NZD pairs

NZD/USD and New Zealand rates will take their cue from the RBNZ’s Q1 inflation expectations survey. A series of supply shocks hitting the New Zealand economy continues to put downward pressure on actual New Zealand inflation.