FOREX ASIA UPDATE - USD

Carry trades recuperated further overnight with AUD and NZD the strongest performing currencies, while JPY was the worst performer.

There was a flurry of mixed economic data overnight, with PPI, jobless claims, the TIC report, Empire State and Philly Fed all released, and overall yields in the US finished higher.

PPI came in stronger at 1.3% in February against -0.6% in January, while initial jobless claims fell to 318k from a revised 330k in January.

However, Empire manufacturing slumped to 1.9 from 24.4 in the prior month and the Philly fed dropped to 0.2 from 0.6 in January, much less than market expectations of 4.0. US TIC portfolio flow data for January showed a strong recovery in net demand for US portfolio securities after a weak December. Net flows into US long-term securities (adjusted for prepayments on ABS and net of US buying of foreign securities) rebounded to $84 bn after slumping to 8-year lows of $1 bn in December.

December is typically the weakest month of the year from a seasonal standpoint, and January is typically average. The detailed data shows solid foreign buying of US securities across all asset classes, particularly equities, and reveals that US investor appetite for foreign stocks and bonds moderated from December's record levels.

However, market conditions and US economic data have changed rather drastically since January, and markets may be cautious about extrapolating January strength forward. The housing market index is released on Monday and is expected to continue its downward trend. Combined with a likely soft CPI, EURUSD should remain bid heading into next week's FOMC meeting.

Ahead today, CPI data is due at 1230 GMT, industrial production and capacity utilisation at 1315 GMT. The market is divided over CPI and core CPI on a monthly basis but sees upside risk on the annual numbers. While monthly CPI is expected to be higher than January, the markets expect a softening in the core CPI numbers.