Dollar continues to rally, Euro continues to collapse

•     Dollar continues to rally, Euro continues to collapse

–    EUR/USD, DXY index back to levels last seen in 2003

–    Particularly remarkable as US rates market has been unwinding the gains made after Friday’s payroll figure

•     ECB policy, hedging is probably behind the rapid move

–    Foreigners were net buyers of European assets for many years, but now are taking profits on European bonds as QE pushes them to ridiculous prices

–    Any buying of European stocks is on a currency-hedged basis, so no FX impact

–    Probably investors didn’t hedge for years and are now rushing to hedge, so this is adding to the trend

•     China data comes in below expectations

–    Retail sales, industrial production, fixed asset investment all below expectations

–    AUD and NZD likely to suffer today as a result

•     Today:

–    Eurozone:  Four ECB board members, including Draghi, speak

–    Sweden: Swedish CPI for February forecast to be unchanged yoy, SEK-positive

–    UK:  Industrial production for January expected up, could be GBP-supportive

–    New Zealand:  RBNZ rate decision overnight; expected to leave rates unchanged, although we look for 25 bps cut