Dollar Keeps Steady - 2.3.2011

The dollar continued to recover lost ground on the back of weaker risk appetite. Ratings agency comments about Greece and Portugal did not help. Nor did calls for a cut to the OCR by New Zealand Prime Minister Key. Weaker-than-expected Australian Q4 GDP also contributed to the sombre mood. EURUSD traded 1.3744-1.3811, USDJPY 81.82-81.98. Gold and oil remain elevated and the Nikkei-225 is down 2.4% at the time of writing. US data releases were largely in line and Fed Chairman Bernanke offered little new in his semi-annual testimony on monetary policy to Congress. Bernanke said the Fed is not debasing the dollar and pointed to the need for sustained stronger job creation. He also believes that the recent jump in commodity prices will not have a permanent effect on broader inflation. The ISM Manufacturing slightly exceeded estimates. ADP employment data is due.

EUR

S&P said its ratings on Greece and Portugal remain on credit-watch negative. In Greece's case, the agency said the rating will depend on the features of the proposed new European rescue mechanism due to come into being in 2013. Greece's compliance with the terms of the existing EU/IMF rescue plan is also a consideration. S&P added that Portugal may have to resort to EFSF and IMF funding, in which case the rating would depend on the terms of any consequent loan agreements. Eurozone PMI releases were generally strong, beating consensus in Germany, Italy, and France. The German unemployment rate also fell marginally to 7.3%. The Eurozone CPI estimate came in line with expectations at 2.4%, still significantly above the ECB's target level.

AUD, NZD

The AUD weakened slightly when Q4 GDP came in fractionally softer than expected at +0.7%q/q (cons. +0.7%) and +2.7% y/y (cons. 2.8%).

The NZD fell sharply after Prime Minister Key said he would welcome a cut in the OCR, and that he cannot rule out a recession in the first half of this year.