Forex Investment and Currency Trading

Overnight the AUD gained ground across the board as the RBA unexpectedly left the cash target unchanged at 3.25%. In addition, a slight bounce in risk appetite triggered a general pull-back in the USD, providing EUR/USD with a bounce off of trend-line support (1.2534) from the October 28 low. The minor shift in risk taking (with yesterday’s US equity weakness not having carried over entirely into Asia) has also provided NZD with some minor support and weighed somewhat on JPY. Price-action in the European morning was rather tame with the economic data calendar having been relatively light.

Norway: Recession appears closer

Despite the fact that Norway has thus far avoided a technical recession, the economic outlook for the Nordic country remains dim. Indeed, the February PMI reading released on Tuesday revealed a sharp decline to 36.4 from 41.4 in January, well below market expectations of 40.2. In this context, the technical recession looks merely postponed instead of entirely avoided, and market looks for GDP to contract by -1.5% in 2009. However, the driving force for NOK at this stage is not the monetary policy outlook but the resumption of foreigners inflows (to Norway), which have now returned to pre-crisis levels after a massive decline in H2 2008. As such, NOK bullish is remained.

Switzerland: recession is now official
The Q4 GDP data revealed that a recession in Switzerland is now official with economic output having contracted -0.3% qoq and -0.6% yoy. However, with the SNB having already implemented a zero-interest rate policy with the one-week report now close to 0%, the CHF is now less vulnerable to negative economic data (i.e. all the “bad news” is priced in). As such, traders continue to be CHF bullish as the currency is support by intra-European monetary convergence, Switzerland’s double-digit current account surplus and the CHF demand created by the crisis in Eastern Europe.