Softer data could not keep the bulls down. US stocks recovered for the second day in a row despite larger than expected declines in housing starts, building permits and consumer confidence. The slowdown in the housing market is no surprise but the slump in the Conference Board’s consumer confidence report goes against the improvement reported by the University of Michigan earlier this month and the rally in stocks in February. USD/JPY also extended its recovery but we continue to believe that the pair is headed lower especially after the latest round of US data. Aside from an improvement in risk appetite, the greenback also received a lift from a rebound in US yields. While the plan for no rate hikes this year is positive for stocks, the motivation is global uncertainty, which is negative for the currency. While the rally could fizzle here, if it extends higher, the sellers will come in at 111. The trade balance is scheduled for release tomorrow and while manufacturing activity continues to slow, the deficit hit a record high the previous month so a recovery is likely. If today’s economic reports did not hurt the dollar, Wednesday’s trade report isn’t likely to do so either.
The worst performing currency today was the euro, which dropped below 1.1300 as it inches towards 1.1250. All of the other major currencies traded higher so EUR/USD is bucking the trend. What’s interesting about the move is that no major Eurozone economic reports were released today and German yields followed Treasury rates higher. During the European trading session, there were some comments about TLTRO-3 including the possibility of details being released in June but at the time EUR/USD was on its way to 1.1325 and did not turn lower until the NY open. Nonetheless, the Eurozone’s economic troubles are well known and with negative German 10 year yields, the pair was hit the hardest by the recovery in the greenback.
Sterling is holding onto its recent gains on reports that members of Parliament are starting to see May’s deal as a better alternative to no deal or no Brexit. However the Democratic Unionist Party (DUP) likened May’s plan to a prison sentence and said they would rather see a one year delay than support her withdrawal agreement. Parliament seized control of the Brexit process last night, taking away the Parliament’s agenda from the government for the first time in more than 100 years. Their first step will be to hold a series of indicative votes on Wednesday on alternatives to May’s deal. Sterling will remain in focus as a result and subject to wild intraday volatility.
For now, investors will be watching NZD. Today’s better than expected trade report which showed New Zealand turning a trade surplus in the month of February had very little impact on the currency. The Reserve Bank meets tonight and traders are eager to see if recent improvements in economy will be enough to keep the RBNZ squarely neutral. When the central bank met last month, they pushed back their forecast for a rate increase to early 2021 but NZD soared after RBNZ Governor Orr said the chance of easing has not increased and noted that growth should pick up. Since then, manufacturing, business and consumer confidence slowed but credit card spending, trade activity, growth, prices and home sales are on the rise. Stocks also hit a record high, which will help consumer and business sentiment.