NEW YORK ( BBH FX Strategy) -- The U.S. dollar is flat-to-lower against most major and emerging market currencies. Tuesday's pessimism over the Greek PSI participation has given way to a nervous holding pattern after more debt holders say they will accept the offer.The euro is slightly higher against the dollar after having retraced more than 61.8% of the rally since Feb. 16. German January factory orders at -2.7% month over month came in far below the expected 0.6% month over month gain, with export orders contracting -5.5% month over month. The data helped bring EUR/USD off its intraday highs.
In the U.S., the Automatic Data Processing report on private sector jobs this morning may offer some clues about Friday's jobs report, but we suspect both will be overshadowed by eurozone concerns. Consensus for ADP is for an added 215,000 jobs vs. 170,000 in January, and would be consistent with continued improvement in the U.S. labor market. Indeed, the fundamental theme of an improved U.S. outlook coupled with eurozone recession could help the dollar to continue firming even after this current bout of eurozone turmoil ends. Reserve Bank of New Zealand meets today and is expected to leave rates steady at 2.5%. Like Reserve Bank of Australia earlier this week, we expect RBNZ to maintain a dovish bias and to warn of downside global risks. AUD and NZD were hit particularly hard Tuesday. For NZD, the next level of support is at the 200-day MA around .8090, which coincides with minimal retracement target of .8086 from the December-February rise. AUD has outperformed NZD recently, with AUD/NZD cross moving up to break 1.30 on Tuesday. However, that AUD outperformance may be over for now. Weak Q4 GDP growth print for Australia of 0.4% quarter over quarter (vs. 0.8% expected) represents a sharp slowdown in Q3, and will likely fan expectations of another RBA rate cut when it next meets April 3. With regards to AUD vs. USD, the 200-day moving average around 1.04 is a good near-term target, while retracement targets are 1.0476, 1.0359, and 1.0241 from the December-to-February rise in AUD. While this point is moot now, RBA Deputy Governor Lowe said the bar for FX intervention is "quite high" and suggests low risk of action against AUD strength ahead. We do expect AUD to strengthen further along with most emerging market currencies once this risk-off trading ends.