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1 Mar 2013
Forex Flash: Growth sensitive currencies under downward pressure - BTMU
Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the commodity-linked G10 currencies of the Australian, New Zealand, and Canadian dollars have all underperformed over the last week alongside the Norwegian krone.
He feels that their recent weakness reflects both a deterioration in investor risk sentiment driven by heightened political uncertainty in Italy following inconclusive election results, and also investors adjusting their expectations lower for the pace of global economic recovery which lies ahead.
He adds that the latest leading PMI surveys from China for February have signalled that the pace of economic recovery appears to have slowed early this year supporting his view that the Chinese economy will rebound only modestly this year by close to 8.0% after slowing to 7.8% in 2012. He writes, “The official manufacturing PMI survey revealed that business confidence declined to 50.1 in February from 50.4 in January, with the more forward leading new orders sub-component declining even more sharply to 50.1 in February from 51.6 in January.”
Further, he adds, the timing of the Chinese Lunar New Year holiday has likely distorted economic data early in 2013, although we do believe there is evidence of underlying slowdown. The deterioration in global investor risk sentiment this week has helped to support the yen as elevated speculative short yen positions have been squeezed.
He finished by writing, “The release of the latest inflation report from Japan overnight for January continued to highlight the scale of the task ahead for the new BoJ leadership to defeat deflation. The annual rate of US-style core inflation declined further into negative territory to -0.7%. Deflationary pressures are expected to intensify further as already evident in the Tokyo data for February.”
He feels that their recent weakness reflects both a deterioration in investor risk sentiment driven by heightened political uncertainty in Italy following inconclusive election results, and also investors adjusting their expectations lower for the pace of global economic recovery which lies ahead.
He adds that the latest leading PMI surveys from China for February have signalled that the pace of economic recovery appears to have slowed early this year supporting his view that the Chinese economy will rebound only modestly this year by close to 8.0% after slowing to 7.8% in 2012. He writes, “The official manufacturing PMI survey revealed that business confidence declined to 50.1 in February from 50.4 in January, with the more forward leading new orders sub-component declining even more sharply to 50.1 in February from 51.6 in January.”
Further, he adds, the timing of the Chinese Lunar New Year holiday has likely distorted economic data early in 2013, although we do believe there is evidence of underlying slowdown. The deterioration in global investor risk sentiment this week has helped to support the yen as elevated speculative short yen positions have been squeezed.
He finished by writing, “The release of the latest inflation report from Japan overnight for January continued to highlight the scale of the task ahead for the new BoJ leadership to defeat deflation. The annual rate of US-style core inflation declined further into negative territory to -0.7%. Deflationary pressures are expected to intensify further as already evident in the Tokyo data for February.”