FX Roundup: China's data weighs on sentiment as market awaits ECB meet

None of the major forex crosses dominated proceedings on Tuesday, with the European Central Bank’s Governing Council meeting due on Thursday, but bad data from China dominated trading room chatter as commodity futures tanked.

China's trade surplus shrank far more quickly in February than anticipated, dipping from $63.3bn in January to $32.6bn, as exports measured in dollar terms registered a decline of 25.4% year-on-year, in comparison to the prior month's reading of -11.2% and market forecasts for a fall of 14.5%.

Julian Evans-Pritchard at Capital Economics, said, "The trade data are highly volatile during the first couple of months of the year. And other indicators, including the export orders components of both manufacturing PMIs, don't point to a sharp drop-off in foreign demand last month."

At 1619 GMT, the dollar was down 0.81% against the yen, changing hands at JPY112.54. The pound lost ground versus the greenback, posting a decline of 0.37% changing hands at $1.4212. However, the euro gained 0.34% changing hands at $1.1051.

Looking ahead to the ECB, Jane Foley, senior FX strategist at Rabobank, said, "Our base case is for a 10 basis points cut in the deposit rate, an extension of the TLTROs (or an equivalent measure) and an expansion of the quantitative easing program to the tune of 10-20bn per month."

Meanwhile, Bank of England governor Mark Carney told a parliamentary committee that the UK’s membership of the European Union, benefitted the economy by increasing its openness, but admitted there were risks from remaining in the EU, and in particular from developments in the Eurozone.

However, the BoE governor emphasised that he and Deputy Governor Jon Cunliffe were not providing a comprehensive analysis of the potential impact of Brexit in their testimony.

“We will not be making any recommendations with respect to [the EU referendum] decision," Carney added.

Commodity linked currencies were largely in retreat during the afternoon session in Europe as oil and metal futures slid. The greenback notched a 0.81% gain versus the Canadian dollar changing hands at CAD$1.3390.

The Australian dollar fell 0.35% against its US counterpart exchanging at US$0.7443 reversing the previous session’s uptick, while the New Zealand dollar slid another 0.65% extending Monday’s decline and exchanging at $0.6757.

A plethora of other commodity currencies headed lower, particularly in Latin America, with the dollar rising 1.02%, 1.98% and 0.64% against the Mexican, Colombian and Chilean pesos respectively.

Kit Juckes, head of forex at Societe Generale, said, “There will be scepticism about the ability of the Chinese authorities to revive growth with easier credit and. fiscal policy. Maybe that will temper the rally in non-oil commodities and show up the different dynamics faced by oil and other commodities, Or maybe the market will shrug the data off.”

“Even if markets do shrug off the Chinese data, I'd rather stick with forex longs in the most oil-sensitive currencies against other resources-sensitive ones, So, long CAD, NOK and RUB, relative to NZD in particular but also BRL at these levels.”