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Daily Market Report
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1
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The Swiss National Bank seemingly went one step further
Fri, Oct 30 2009, 13:56 GMT
by Wells Fargo Research Team
Market Summary
The dollar is ending the week on a stronger note against most major and emerging currencies. The key exception is Asia, where are Bank of Japan announced it would end some of its unconventional policy easing measures, and firm data supported the emerging Asian currencies. However other G10 currencies are lower, in part on flat European equities and soft U.S. equity futures. ECB policymaker Noyer signaled some concern at recent FX moves, saying that a weaker pound and U.S. dollar were a ‘problem’ for Europe. The Swiss National Bank seemingly went one step further, with the intraday price action suggesting the central bank intervened to weaken the franc. Eastern European currencies are down, as are most Latin currencies. The dollar’s dollar performance over the rest of the day should be largely dictated by equity moves. We take a neutral view on today’s trading session: while equity futures are currently down, month-end effects have the potential to move equity markets and the dollar in either direction.
Regional Highlights
Asia/Pacific
The yen is the firmest G10 currency today after the Bank of Japan held its overnight call rate at 0.10% but also confirmed it would end its commercial paper and corporate bond purchase programs at the end of this year. In its semi-annual outlook projected deflation would persist for some time, into 2010 and 2011. Today’s Japan’s activity data was also firm: September employment rose and the jobless rate fell to 5.2%, while September household spending rose 1% y/y. The September nationwide core CPI was of course still deep in negative territory, at -2.3% y/y. Other data across the region was firm – Korea’s industrial output jumped 11% y/y, while Thailand’s manufacturing output unexpectedly rose 0.4% y/y. The won, rupee and ringgit are the best performing Asian currencies today while down under, the Australian and NZ dollars are losing ground against the greenback.
Europe
Today’s European data is mixed, while European currencies are weaker. The Eurozone October CPU dipped 0.1% y/y and the September jobless rate rose to 9.7%, both as forecast, while Germany’s September retail sales unexpectedly fell by 0.5% m/m. In the U.K., October Nationwide house prices rose 0.4% m/m and 2% y/y. Switzerland’s October KOF leading indicator was actually firmer than expected, rising to 1.45, the highest level since February 2008. However the Swiss franc is down against both the euro and the dollar on what looks suspiciously like FX intervention from the Swiss National Bank. Eastern European currencies are broadly weaker today as well – the only data of note from that region today is an 11.9% y/y fall in Czech September industrial output.
Americas
Today’s range of U.S. data is subdued. September personal incomes were flat for the month while personal spending fell 0.5% m/m. Core PCE prices were steady at 1.3% y/y, and while the savings rate rose it remains low at just 3.3% of disposable income. The Q3 employment cost index was also tame, rising just 0.4% q/q, while later today the October Chicago manufacturing PMI and revised October Michigan consumer sentiment are both on the release schedule. The Canadian dollar is taking it on the chin after an unexpected 0.1% m/m decline in August GDP – the currency is down more than 1% against the greenback. Most Latin currencies are weaker as well, although the Brazilian currency is slightly stronger v ersus the greenback.
Published on Fri, Oct 30 2009, 13:56 GMT
9
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Higher risk aversion is a key driver of currencies this morning
Wed, Oct 28 2009, 14:01 GMT
by Wells Fargo Research Team
Market Summary
Risk aversion remains the dominant theme in the FX markets this morning, giving a boost to the US dollar and the Japanese yen. It is notable that the slightly firmer than expected CPI report in Australia and a rate hike in Norway failed to lift the recovery optimism, with equities and commodities in the red this morning. Perhaps this is a sign that the disconnect between the buoyant financial markets and the fragility of the underlying global economy has already reached an extreme point. If that is the case, equity markets should continue sobering up in the face of the first signs that global central banks are starting to ‘normalize’ policy, thus weighing on the commodity and emerging market currencies which have been among the biggest FX gainers recently. The rest of the week and the market’s reaction to tomorrow’s US Q3 GDP report will be key in determining whether a deeper risk appetite correction is likely going forward or whether the ‘buy the dip’ mentality is likely to return.
Regional Highlights
Asia/Pacific
Higher risk aversion is a key driver of currencies this morning as illustrated by further gains in the US dollar and a strong recovery in the Japanese yen. Meanwhile, the commodity based currencies are among the biggest decliners, with emerging Asian currencies also trading lower today. The Australian Q3 CPI release came out on the firm side of expectations slowing to 1.3% y/y at the headline and to 3.8% y/y in the underlying weighted median measure. The bounce in the Australian dollar in reaction to the data was brief and quickly reversed on negative equity market sentiment. Other regional data was mixed and had limited market impact. October business confidence fell to 48.2 in New Zealand, while in Japan retail sales rose by 0.9% m/m in September. On the policy front, Malaysia’s central bank left rates steady at 2.00%. The Reserve Bank of New Zealand is expected to leave policy steady at 2.50% this afternoon but is also seen communicating a shift away from an easing bias.
Europe
The much anticipated policy meeting by Norway’s central bank produced the expected outcome, with rates being raised by 25bp to 1.50% - the first policy tightening in the European region. The hike came despite today’s reported rise in Norway’s unemployment rate to 3.2% in August, giving an immediate boost to the krone. Meanwhile, the euro remains vulnerable, with weakness in regional equity markets in general and banking sector stocks in particular weighing on the single currency. The Swedish krona is underperforming the euro against the background of a mixed set of domestic economic data. Swedish retail sales undershot expectations with a 0.2% m/m rise in September, but October consumer and manufacturing confidence were firmer. In the emerging market space, the South African rand slipped further after the CPI slowed to 6.1% y/y in September.
Americas
The US September durable goods orders were spot on market expectations with a 1% m/m rise at the headline, while registering an encouraging 2% rise in the core measure. Later today, September new home sales are seen climbing by a strong 2.6% m/m. Meanwhile, the Canadian dollar extended its recent losses under pressure from lower oil prices, while the Mexican peso and the Brazilian real are little changed so far this morning. The pace of the decline in Mexico’s global economic indicator slowed to 6.9% y/y in July.
Published on Wed, Oct 28 2009, 14:01 GMT
5
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The fastest expansion in seven years
Mon, Oct 26 2009, 14:05 GMT
by Wells Fargo Research Team
Market Summary
The euro just managed to carve out a new 14-month high against the dollar overnight, but struggled to extend the gains, while the greenback has been resilient elsewhere. The early pressure on the dollar today was probably a combination of more upbeat global sentiment after a stronger than expected GDP report in South Korea, and an article in a Chinese financial newspaper arguing that the China should increase the share of the euro and the yen in its FX reserves. However, the reserve diversification theme is not new and is failing to make a major impact, while we believe that the close link between market risk appetites and the dollar is also becoming much less of a sure bet. The key economic report this week is the US Q3 GDP, and as last week’s UK GDP report suggested, the ability to register an ‘official’ end of the recession can have an important psychological impact on a currency. Our economists are on the firm side of market expectations with a 3.7% q/q (annualized) for ecast, which should in our view lend support to the greenback.
Regional Highlights
Asia/Pacific
Regional currencies started the week with a firmer tone against the dollar, although the scope of currency moves is very modest today. The underlying story has likely been another bounce in risk appetites after South Korea’s Q3 GDP beat market expectations, rising by 2.9% q/q (non-annualized), the fastest expansion in seven years. While the good economic news probably explains a stronger won and Australian dollar this morning, the yen’s modest bounce is more likely attributable to an article in China’s Financial News which argued that China should raise the amount of the yen and the euro in its FX reserves. It’s also notable that the New Zealand dollar is falling behind its Australian counterpart this morning, while among the emerging Asian currencies the Indonesian rupiah is underperforming in line with a fall in the local equity markets. The Singapore dollar is also down after industrial production fell by a larger than expected 9.1% m/m in September.
Europe
The euro stretched out to reach a new 14-month high against the dollar overnight but has struggled to add to those early gains. There was little regional economic news to note outside of the unexpected fall in Germany’s November GfK consumer confidence to 4.0. Meanwhile, the British pound is seeing a technical bounce against the dollar after sharp decline in the latter part of last week, while the Scandinavian currencies are mixed with the Norwegian krone stronger and the Swedish krona weaker this morning. Israel’s central bank is making a rate decision later today and the market consensus is leaning towards rates unchanged at 0.75% given recent strength in the shekel and the fact that September CPI undershot expectations.
Americas
The US data calendar is thin today with only the Dallas Fed October manufacturing index scheduled. The key US data release this week will be the Q3 GDP report on Thursday currently expected to show a 3.2% q/q annualized rise, suggesting an end to the US recession. While the dollar is generally slightly weaker this morning, the Canadian dollar is slipping against the buck, perhaps a sign that the Bank of Canada currency ‘jawboning’ continues to impact the FX markets. In today’s comments the BoC Governor Carney’s repeated that Canadian dollar could be ‘a significant further drag’ on the economy. Elsewhere, the Brazilian real and the Mexican peso have opened firmer, supported by positive global market sentiment.
Published on Mon, Oct 26 2009, 14:05 GMT
0
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The dollar is up against most G10 currencies
Fri, Oct 23 2009, 13:50 GMT
by Wells Fargo Research Team
Market Summary
The dollar is up against most G10 currencies, but lower against emerging currencies. Today’s moves among the G10 currencies is of some interest – the price action does not necessarily imply a reversal of the greenback’s weaker trend, but it is potentially consistent with a pause of the dollar’s rapid slide. Eurozone data was firm virtually across the board, with strength in October surveys and other activity data also robust. Global equity markets are also showing broad-based strength, which in recent weeks and months has typically been negative for the dollar. With all of that, the euro has failed to push higher, an indication that short-term positioning is already very extended. The British pound also reacted very sharply to disappointing U.K. news, another indication perhaps that FX moves are already extended. The fact that the dollar is still losing ground versus the emerging currencies does not suggest an overall dollar trend, but we would watch near-term price action and speculative positioning data for clues to a pause in the dollar’s decline.
Regional Highlights
Asia/Pacific
Asian currencies are generally stronger, reflecting some positive data and generally firm equity markets. Taiwan’s September industrial output rose 1% y/y, the first gain since August 2008, while September exports orders fell 3% y/y, less than expected. Singapore’s September CPI fell by 0.4% y/y, while Malaysia’s 2010 government budget was well received. The Malaysian government announced a reduction in taxes and spending, and projected the budget deficit to narrow from 7.4% of GDP this year to 5.6% of GDP next year. The Indonesian rupiah is the strongest regional currency as Standard & Poors raised the country’s credit rating from stable to positive, while the Korean won, Philippines peso and Malaysian ringgit are also among today’s gainers. The Australian and New Zealand dollars are down, after a strong week, while the Japanese yen is lower too.
Europe
Today’s Eurozone news was firm across the board, and while the euro is broadly steady against the buck it is still one of the best performers among the G10. The Eurozone October manufacturing PMI rose to 50.7, returning back to growth territory, while the service PMI rose further into growth territory, at 52.3. Germany’s October IFO business confidence index rose 91.9, broadly as expected and a 13-month high. Eurozone August industrial orders rose 2% m/m, while French September consumer spending jumped 2.3% m/m. In contrast the pound is down almost 1½% against the buck after an unexpected 0.4% q/q fall in Q3 GDP, a sixth straight decline. The Scandinavian currencies are down slightly – the Swedish krona was much firmer yesterday on favorable developments from Latvia, while the Swiss franc is lower as well. Finally, ECB policymaker and Slovakian central bank head Sramko commented on the euro, saying a strong currency can start causing problems for the Eurozone and that the euro needs more stability.
Americas
It is a moderately busy day across the region. Brazil’s September current account was not quite as good as expected, but that has not prevented further gains in the Brazilian real. The September current account deficit was $2.31B, slightly wider than expected, while September foreign direct investment was $1.82B, slightly less than expected. In other events today U.S. September existing home sales are expected to rise by 4.9% m/m to a 5.35M annualized selling pace, while Mexico’s September trade deficit should widen to $926M. Colombia’s central bank announces its monetary policy decision, and is expected to keep its overnight lending rate at 4.00%.
Published on Fri, Oct 23 2009, 13:50 GMT
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The U.S. dollar is enjoying a better day
Thu, Oct 22 2009, 13:45 GMT
by Wells Fargo Research Team
Market Summary
The U.S. dollar is enjoying a better day, gaining some support from widespread weakness across global equity markets. The trigger for today’s move is perhaps a little unusual, with strong Chinese data prompting concerns that economic stimulus measures may be reduced, hurting financial market performance. Still regardless of the source of the equity decline, it is certainly impacting the growth sensitive Australian, New Zealand and Canadian dollar, which are lagging among the G10 currencies. Asian currencies are also suffering widespread losses, which is understandable given the relevance of China to the financial market moves. Latin American currencies are also down but losses across that region are more limited. In our opinion, today’s events indicate that financial market optimism would be susceptible to a change in the current accommodative policy stance. While it may be too early for a policy adjustment just yet, the removal of policy accommodation will become an increasingly important theme through 2010 as global central banks start raising rates, a theme that would most likely be positive for the U.S. dollar.
Regional Highlights
Asia/Pacific
Today’s Chinese economic figures were broadly firm, as expected. China’s Q3 GDP rose 8.9% y/y, the fastest pace in a year, while September month activity data also showed a 15.5% y/y gain in retail sales, and a 13.9% y/y gain in industrial output. The decline in the September CPI meanwhile slowed to just 0.8% y/y. Perhaps counter intuitively, the firm Chinese figures raised concerns that economic stimulus measures may be removed is contributing to widespread weakness in global equities. Most Asian currencies are lower, but particularly the Indonesian rupiah and Korean won, which have been among the best performers of the past six months. The growth sensitive Australian and New Zealand dollars are lower, and the Japanese yen is slightly weaker as well. Japan’s September trade surplus fell more than expected to just Y59B, but August all-industry activity index did rise 0.9% m/m, a fifth straight gain.
Europe
French October business confidence rose more than expected to 89, but that positive news for the euro was offset by equity market weakness and dovish comments from the ECB’s Weber. The typically hawkish Mr. Weber said that inflation risks were non-existent for now, and there was no need to rush to an exit policy. Sweden’s Riksbank held its repo rate at 0.25% and repeated that is was unlikely to tighten policy until the fall of 2010. The Riksbank also extended its liquidity program to Swedish banks, offering a further 100B in loans at a fixed rate for 11 months. U.K. news was also dovish – September retail sales were flat month/month and rose 2.4% y/y, while central bank policymaker Tucker said expanding the Bank’s asset purchase program would be possible, if necessary. South Africa’s central bank announced its monetary policy decision today, leaving its benchmark interest rate at 7.00%.
Americas
U.S initial jobless claims rose by 11,000 to 531,000, although continuing claims did fall a further 98,000 to 5,923,000. Also released later today in the U.S. are September leading indicators and August house prices. Canada’s retail sales rose 0.8% m/m, twice as much as expected. The Bank of Canada releases its Monetary Policy Report today: the report will include the full details of its latest economic projection, although we already know from this week’s monetary policy decision that the central bank has downgraded its GDP growth forecasts slightly. In Mexico August retail sales are due for release, with economists expecting the decline to slow to 3.8% y/y, while Brazil’s central bank yesterday held its benchmark interest rate at 8.75%.
Published on Thu, Oct 22 2009, 13:45 GMT
5
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The dollar is reasonably stable for a second day
Wed, Oct 21 2009, 13:58 GMT
by Wells Fargo Research Team
Market Summary
The dollar is reasonably stable for a second day, with some renewed equity market volatility helping to stem the greenback’s slide. Equity markets are down across Asia and Europe, while U.S. equity futures are also pointing to the downside. That said, the underlying sentiment still appears to be one of dollar weakness given the greenback is stable rather than stronger against the backdrop of more difficult equity market conditions. Within the G10, central bank views appear to be an important driver of today’s currency trends. The British pound and New Zealand dollar are higher on what are seen as hawkish central bank comments, while the Canadian dollar is still losing ground after the Bank of Canada monetary policy announcement. For the most part emerging market currencies are lower, reflecting widespread equity weakness. Both appear to be related to Brazil’s announced tax on foreign purchases of Brazilian securities, which (temporarily) appears to be hurting emerging market sentiment more broadly.
Regional Highlights
Asia/Pacific
The New Zealand dollar is higher after central bank Governor Bollard suggested a strong currency would not be an impediment to rate hikes. In a radio interview, Mr. Bollard said the local currency’s gains were being driven by a weak U.S. dollar, and were already factoring in New Zealand rate increases. In NZ data, September credit card spending fell 2.3% y/y while September visitor arrivals rose 3.8% m/m. The Australian dollar is down, even with a 1.1% m/m rise in the August leading index. Thailand’s central bank held its benchmark interest rate at 1.25% as expected, saying that inflation pressure remains muted and that low interest rates were appropriate to support growth. Regional currencies are generally down, led lower by the Korean won and Indian rupee. Regional equity markets are weaker, while there are also ongoing concerns of FX intervention by the Bank of Korea.
Europe
The standout currency today is the British pound, which is up more than 1% against the buck. The Bank of England released the minutes of its latest monetary policy meeting, which revealed a 9-0 vote to hold the central bank’s asset purchase program at 175B pounds. The key mover for the currency however was a newspaper opinion piece by central bank governor King, in which he said that interest rates would need to rise from their record low level “at some point”. Finally an October U.K. manufacturers’ surveys showed a further softening in orders from already very soft levels. Otherwise acceleration in Switzerland’s M3 money growth to 7.8% y/y is the only other release of any particular note. The Swiss franc is slightly higher against the dollar, as is the euro.
Americas
Regional currencies are mixed ahead of news and events that are scheduled for later in the U.S. trading session. The Mexican peso is stronger – that country’s lower house of Congress passed the income portion of the 2010 government budget, but it did not include a 2% consumption tax that President Calderon had proposed. The Canadian dollar has extended the decline seen after yesterday’s central bank monetary policy announcement.
And with the Brazilian real still under some pressure, newspaper reports cited an (unnamed) Brazilian central bank official saying the recently announced tax on foreign purchases of Brazilian securities will not cause the real to weaken. As for today’s events, the Federal Reserve releases its Beige Book, Brazil’s central bank should leave its benchmark interest rate at 8.75%, and Mexico’s September jobless rate should be steady at 6.28%.
Published on Wed, Oct 21 2009, 13:58 GMT
7
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The pound is higher despite worrisome fiscal trends
Tue, Oct 20 2009, 13:54 GMT
by Wells Fargo Research Team
Market Summary
The greenback is steady overall after starting the week on a softer note. European currencies are trying to advance, but so far have made limited gains. The pound is higher despite worrisome fiscal trends, and the euro is a touch higher despite hints of concern about a strong currency from European officials. Asian currencies are stronger, helped by equity inflows and at times by comments from central bankers indicating comfort with local currency gains. In some instances however, international developments are contributing to weakness in foreign currencies against the greenback. The Canadian dollar is down after the central bank said that over time a strong currency would more than offset favorable economic developments, leading the bank to lower its medium-term growth and inflation forecasts. The Brazilian real is down after the government announced a tax on foreign purchases of local stocks and bonds. While the dollar is more stable today, one suspects that near-term sentiment re mains biased towards dollar downside.
Regional Highlights
Asia/Pacific
The Australian dollar is holding steady after the central bank monetary policy meeting minutes provided another hawkish message. The minutes repeated the need for further interest rate increases and said that a stronger currency could help to contain inflation. The NZ dollar is down but most regional currencies are firmer with regional equity markets stronger and foreigner net buyers of Asian equities for a fifth straight day. The Korean won and Indian rupee are the best performing regional currencies today, while the Malaysian ringgit is also stronger as the central bank governor said that exports remain “resilient” even with a stronger currency.
Europe
There is a smattering of news from Europe today. In the U.K., the September month public sector borrowing requirement was 14.8B pounds, slightly narrower than expected. Still, the deficit for the first half of the fiscal year was 77.3B pounds, the largest half-year deficit since records began in 1946. In other data, Italian industrial orders slumped by 8.6% m/m. And on the policy front, European officials signaled moderate concern about the strength of the euro. European finance ministers said that foreign exchange movement were a “problem which worries us”, while ECB President Trichet said that excessive volatility is bad for economic development. Be that as it may, European currencies are generally ignoring this currency negative news. The euro is basically unchanged, while the pound and Swiss franc are slightly higher.
Americas
Today’s U.S. figures surprised slightly to the downside. September producer prices fell by 0.6% m/m overall and by 0.1% excluding food and energy, indicating that price pressures remain muted for the time being. Meanwhile September housing starts rose 0.5% m/m to a 590,000 unit annual pace and building permits fell 1.2% m/m to a 573,000 unit annual pace, both slightly below expectations. Meanwhile, Fed Chairman Bernanke called yesterday for the U.S. and Asia to reduce economic imbalances, perhaps contributing to heightened expectations of renminbi appreciation (3.7% over the next year) priced into the non-deliverable forward market. In Canada, the central bank held its benchmark interest rate at 0.25% and repeated that rates would remain low until mid-2010. The strong Canadian dollar is also seen as restraining growth and inflation over time, reinforcing the downside risks to the inflation outlook. The Brazilian real is down after the government announced a 2% tax on foreign purchases of local stocks and bond, a measure aimed at avoiding excess speculation.
Published on Tue, Oct 20 2009, 13:54 GMT
4
0
The Australian dollar is higher
Mon, Oct 19 2009, 13:35 GMT
by Wells Fargo Research Team
Market Summary
The dollar has once again started the new week on soft footing. Some of today’s strength in foreign currencies reflects local data and events. For example, the Australian dollar was helped by central bank comments, while the NZ dollar got some support from a stronger service sector survey. Positive equity markets are also helping most international currencies. Latin American currencies are generally higher, although Asian currencies are mixed given overall favorable sentiment. And for some currencies like the euro, today’s gains simply reflect a path of least resistance. There is no European data of note and the main event that market participants will be watching for are currency comments from today’s European finance ministers meeting. Another indication that there is little standing in the way of a weaker dollar for the time being is reaction to the Barron’s article for the Fed to starting raising rates: it attracted some attention from market players, but little to no support for the dollar. On balance, we expect another down week for the greenback.
Regional Highlights
Asia/Pacific
The Australian dollar is higher, as comments from a central bank assistant governor Lowe reinforced the hawkish comments from the central bank governor last week. Mr. Lowe said it was appropriate to go back to a more normal monetary policy setting, and that this process was underway. The NZ dollar is higher, lifted more by the Aussie, and a rise in New Zealand’s September services PMI to 53.2. In Japan, the August tertiary activity index (a measure of service sector output) rose 0.3% m/m, but September nationwide department store sales fell 7.8% y/y. The minutes from the Bank of Japan’s mid-September monetary policy meeting repeated the need for the Bank’s supplementary credit easing measures was waning. Across Asia currencies are little moved despite broad strength in equities. The main exception is the Korean won, which is down around a ½% against the buck.
Europe
European currencies are higher today, extending recent trends on a day that is light on news. The euro is up slightly but below Friday’s highs. One event that will be watched today is the Eurogroup finance ministers’ meeting, after Luxembourg Finance Minister (and Prime Minister) Juncker said the euro would be discussed. The Swiss franc is stronger, as is the Norwegian krone. One currency that is lagging behind is the British pound. While house prices were again firm – October Rightmove house prices rose 0.2% y/y, the first increase since June 2008 – markets paid more attention to central bank comments. The Sunday Times newspaper reported that Bank of England policymaker Posen may support in increase in the central bank’s asset purchase program beyond current levels. The pound is down slightly, as is the Swedish krona. The Hungarian forint is stronger against the greenback after the National Bank of Hungary cut its benchmark interest rate by 50bp to 7.00%, as expected.
Americas
It is quiet across the Americas today. Canada’s August international securities transactions data showed a net overall inflow into Canada, with foreigner net buyers of Canadian securities to the tune of C$5.08B, and Canadian net sellers of foreign securities to the tune of C$0.11B. Fed Chairman Bernanke speaks on Asia and the financial crisis at a San Francisco Fed conference later today. On Friday, Mexico’s central bank held its overnight rate at 4.50%, and said that future policy would be dictated by the path of the economy and the inflationary effect of the government’s fiscal package.
Published on Mon, Oct 19 2009, 13:35 GMT
9
1
European currencies are lower against the greenback this morning
Fri, Oct 16 2009, 13:44 GMT
by Wells Fargo Research Team
Market Summary
The US dollar is enjoying somewhat of a recovery this morning against most major currencies. One exception is the British pound, itself a notable underperformer in recent weeks. Technical factors and the extent of the speculative short dollar positioning are probably the best explanations for the easing in the dollar bearish sentiment today. The euro in particular has now come close to the $1.50 “psychological” threshold that is likely to be both an attractor and a deterrent for the market. ‘Official’ currency comments out of the Eurozone have been fairly benign so far, but this may change should the euro reach new highs. We have also argued for a while that extreme dollar negative sentiment is not justified by relative economic trends, and this week’s generally positive US data mix reaffirms that view. However, insofar as dollar’s broad-based weakness in recent months has been driven by ‘cheap’ dollar liquidity, the Fed’s dovish stance should prevent a particularly stron g or sustained recovery in the greenback in the near term.
Regional Highlights
Asia/Pacific
The US dollar is recovering moderately but broadly this morning, and the yen is down to its weakest level against the buck so far this month. A less extreme dollar bearish sentiment and rising US Treasury yields (implying a widening spread between the US and Japanese interest rates) are probably behind the yen’s slippage this morning. There was little to report on the data front today with foreign investors reportedly selling 300.8B yen in Japanese bonds and buying 391.9B in stocks during the week ended October 9. Elsewhere, Singapore’s non-oil domestic exports rose by a stronger than expected 3% m/m in September. Asian emerging market currencies are lower today along with the Australian and NZ dollars. In other news, the US Treasury criticized China for “lack of flexibility” in the yuan in its semi-annual currency report but refrained from labeling it as a ‘currency manipulator’.
Europe
European currencies are lower against the greenback this morning. Regional equities are generally in negative territory and economic data, while not being the main currency driver, has been disappointing today. The Eurozone August trade balance surprised by flipping to a deficit of 4B euro in August, while Swiss real retail sales for the same month unexpectedly dropped by 1% y/y. The British pound is holding up better than the, while the Swedish and Norwegian currencies are the regional underperformers today and over the course of this week.
Americas
US industrial production rose by a stronger than expected 0.7% m/m, a third straight increase and a clear sign of an ongoing economic recovery. Meanwhile, the US Treasury reported a modest net capital inflow of 10.2B and a long-term inflow of $28.6B for the month of August, broadly in line with market expectations. October Michigan consumer sentiment data and the September budget statement are due later today. In Canada, the September headline CPI fell by 0.9% y/y, in line with the August reading, while the core rate slowed further below the central bank’s 2% target to 1.5% y/y. The numbers were close to expectations and Canadian dollar’s fairly sharp drop this morning is probably a reflection of the speed of its rise in recent days. Elsewhere, Mexico’s central bank is expected to leave rates steady at 4.50% at its policy meeting today and to signal it is to remain on hold. The Mexican peso and the Brazilian real ha ve opened weaker this morning.
Published on Fri, Oct 16 2009, 13:44 GMT
8
0
Today's US data is generally firmer than expected
Thu, Oct 15 2009, 13:54 GMT
by Wells Fargo Research Team
Market Summary
US bank earnings undershot expectations this morning, giving a safe-haven lift to the US dollar which had fallen to new multi-month lows overnight. US economic data releases were also generally firmer than expected so far today, although of course the link between the dollar and economic data remains far from straightforward. The post-data reaction is most notable in the dollar/yen pair, with the Japanese currency weaker as US Treasury yields rise. We also suspect that unabated dollar weakness over the recent days has led to a substantial build up of speculative short dollar positions, which are being partially trimmed this morning. Unwind of speculative shorts is probably also boosting the British pound after a Bank of England official suggested economic recovery may prompt policymakers to pause their bond purchase program. Despite the greenback’s bounce today, we suspect the dollar negative sentiment remains well entrenched and selling the dollar remains t he path of least resistance for the FX markets in the near term.
Regional Highlights
Asia/Pacific
The Australian dollar reached a 14-month high against the greenback overnight after comments form the Reserve Bank of Australia Governor Stevens reaffirmed market expectations that further policy tightening will be forthcoming this year. Mr. Stevens said policymakers should not be “too timid” in removing monetary stimulus. The New Zealand dollar rose as well, in part helped by a smaller than expected slowing in the Q3 CPI to 1.7% y/y. Early trends were reversed sharply however after the release of somewhat disappointing US bank earnings this morning, with both the Aussie and the kiwi now little changed against the buck. The yen has been sliding slowly but surely this morning, while emerging Asian currencies are mixed, with the won stronger but the rupee slightly weaker after wholesale prices rose by a smaller than expected 0.92% y/y.
Europe
The British pound went from underperformer to the strongest major currency this morning after a Bank of England official suggested policymakers may pause their bond purchase program. We also suspect that some unwinding of the heavy short speculative positioning on the pound has contributed to the extent of the pound’s move this morning. Meanwhile, the euro slipped after touching new highs overnight in reaction to this morning’s US bank earnings reports that undershot expectations. The final estimate of the Eurozone September CPI showed a fall of 0.3% y/y, while the ECB President Trichet also made some comments today. Mr. Trichet repeated that policy rates are “appropriate”, while adding that he does not see severe credit constraints in the Eurozone economy. He also stuck with the familiar message on currencies saying US authorities must support a strong dollar.
Americas
Today’s US data is generally firmer than expected. The US September CPI fell by 1.3% y/y at the headline, while the core measure firmed to 1.5% y/y. Meanwhile, initial and continuing jobless claims fell to 514,000 and 5.992 million respectively. The biggest surprise was probably the sharp rise in the New York manufacturing survey to 34.57 in October, the highest reading since 2004. While the Philadelphia Fed October manufacturing survey will also be released later today, a major FX market driver this morning are US bank earnings. Elsewhere, Canadian manufacturing shipments fell by a larger than expected 2.1% m/m in August, although only partially reversing the 5.2% m/m jump in July. Finally, Brazil’s reta il sales rose by 0.7% m/m in August.
Published on Thu, Oct 15 2009, 13:54 GMT
7
0
Today's range of European data are generally positive
Wed, Oct 14 2009, 13:50 GMT
by Wells Fargo Research Team
Market Summary
The dollar continues to struggle, with today’s news from China perhaps an important factor behind its continued slide. Money growth and new lending both quickened in September, an indication that China’s central bank is maintaining an accommodative monetary policy stance, boosting both global equity markets and currencies. Dovish comments from Fed Vice Chairman are also a factor – he said that U.S. growth and inflation could lag the central bank’s objectives, warranting very low interest rates for an “extended period”. With firm European data adding to that mix and U.S. retail sales having little impact, the greenback is experiencing widespread losses against the G10 as well as emerging currencies. While we believe that the U.S. dollar’s decline is overdone and not entirely warranted, there appears little on the events schedule to stop its slide at this point. With the dollar’s dovish bias still intact after the retail data, there seems little on the agenda to alter the greenback’s t rend over the balance of this week.
Regional Highlights
Asia/Pacific
The Japanese yen is hardly changed with the central bank leaving its monetary policy stance on hold at today’s announcement. The Bank kept its overnight call rate at 0.10% and made no official change to it commercial paper and corporate bond purchase programs, but accompanying comments from BOJ Governor Shirakawa hinted that those programs could end soon. The Reserve Bank of New Zealand said it is removing some of the liquidity provision programs that it introduced at the height of the financial crisis, an announcement that provided temporary support for the New Zealand dollar. In regional data Japan’s September consumer confidence rose to 40.7, New Zealand September house prices rose 44% y/y, and Australian October consumer confidence rose 1.7% m/m. There is some noteworthy data from China today: the September trade surplus fell to $12.9B as exports were weaker than imports. However, September M2 money growth quickened to 29.3% y/y, and new loans rose by 517B renminbi in September. The latter are indications that Chinese monetary policy remains accommodative, supporting regional equities and currencies, with the rupiah, rupee and ringgit among today’s largest gainers.
Europe
Today’s range of European data are generally positive. European industrial output rose for a fourth month in August, by 0.9% m/m, while in the U.K. September claimant count unemployment rose by 20,800, the smallest rise since May 2008. Modestly positive regional data and negative U.S. dollar sentiment are combining to push European currencies higher. The Norwegian and Swedish currencies are actually the strongest among the G10 currency, followed by the British pound. While the move in the euro is more measured, its gain is still noteworthy, with the single currency reaching a new 2009 high. Regional emerging currencies are stronger as well, despite disappointing retail sales figures today from South Africa and the Czech Republic.
Americas
September U.S. retail sales were a favorable surprise. The 1.5% m/m fall in sales was smaller than expected, and largely reversing the August gain. In contrast core sales measures showed an increase, including a 0.4% m/m gain in retail sales excluding autos and gas. September import prices edged up 0.1% m/m, while later today the minutes of the Federal Reserve’s monetary policy meeting will be keenly watched by market participants. In FX markets the Canadian dollar is stronger, as is th e Mexican peso and Brazilian real.
Published on Wed, Oct 14 2009, 13:50 GMT
4
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The New Zealand dollar is testing recent highs
Tue, Oct 13 2009, 13:56 GMT
by Wells Fargo Research Team
Market Summary
The dollar has maintained its weaker bias, extending its decline despite an indifferent performance by global equity markets today. The euro advanced to new multi-month highs as did the Australian and Canadian dollars, while the trade-weighted value of the greenback dropped to its lowest level since August of last year. Today’s economic bright spots were few, with the rise in New Zealand’s retail sales perhaps the clearest example of good news. Stronger oil prices likely helped the Canadian dollar and Norwegian krone as well. For the most part however foreign currency gains occurred despite subdued economic data and without any support from equity market sentiment. Those moves highlight the ‘anti-dollar’ nature of today’s FX trading, and at least for the now the default strategy in the absence of any information is one of selling dollars. A larger equity correction, and/or a reaction to U.S. data are seemingly needed to stem the dollar’s slide – on that front there is at least a busier U.S. calendar over the balance of this week.
Regional Highlights
Asia/Pacific
Regional currencies are generally stronger as the U.S. dollar continues its struggles. The New Zealand dollar is testing recent highs, helped by a 1.1% m/m gain in August retail sales, twice as much as forecast. The Australian dollar is up by less, but reaching new highs, even as September business conditions slipped 1 point to +3 and business confidence slipped by 4 points to +14. Japanese monetary data were mixed: September bank lending slowed to 1.6% y/y, while growth in M3 money quickened to 2.2% y/y. The Bank of Japan announces its monetary policy decision tomorrow – analysts expect the overnight call rate to remain at 0.10%, while there is some focus on whether the Bank will hint that it will allow its purchase programs for commercial paper and corporate bonds to expire. Finally, the rupiah, ringgit and Philippines peso are all stronger, as Asian currencies play ‘catch-up’ after lagging behind in Monday’s trading.
Europe
European currencies are firmer on balance, although today’s European data is subdued in tone. Germany’s ZEW index of investor confidence fell slightly to 56.0, while price data elsewhere across the region were benign. The U.K. September CPI slowed to 1.1% y/y, while the core CPI eased to 1.7% y/y. In Sweden the September CPI fell by 1.6% y/y, while the core CPI slowed to 1.4% y/y. Finally Switzerland’s September producer and import prices fell 4.9% y/y, a smaller fall than in August. On the monetary policy front, ECB policymaker Noyer said there was ‘no reason’ for the central bank to change its policy stance at this time. In the currency markets, the euro reached a new high, while the Norwegian krone is also stronger, boosted by oil prices. The Swedish krona’s gains are more modest, while the British pound is hardly changed on speculation the Bank of England could extend its accommodative monetary policy stance.
Americas
Regional currencies continue to make gains against the U.S. dollar. The Canadian dollar is firmer, in part on higher oil prices and despite a modest 0.1% m/m rise in August new house prices. The Mexican peso continued its advance, even as Mexico’s August industrial output fell a larger than expected 7.3% y/y and July investment spending fell a larger than expected 14.1% y/y.
The Brazilian real is also stronger, as is the Chilean peso. Chile’s central bank announces its monetary policy decision today, with the benchmark interest rate expected to remain at 0.50%, and the focus on potential changes to supplementary liquidity measures.
Published on Tue, Oct 13 2009, 13:56 GMT
6
0
There is very little news from Europe today,
Mon, Oct 12 2009, 14:03 GMT
by Wells Fargo Research Team
Market Summary
The dollar continues to trade with an overall softer bias at the start of the new week. The greenback is down against most of the G10 currencies, particularly the Canadian currency which is still receiving a boost from firm jobs figures released last Friday. The euro is up as is the Swiss franc, as European equity markets are broadly stronger, but the British pound is lower, extending its underperforming trend. The Mexican peso is enjoying a good day against the dollar, although other Latin currencies are mixed. As a group, the region that is showing the most notable underperformance today is Asia, where fear of FX intervention by regional central banks is outweighing generally good economic news. With little news on the U.S. agenda today, it will be a case of watching equities, and with global bourses generally higher the dollar could remain under some pressure. In fact with most market participants still inclined to sell the greenback, it would probably take renewed market volatility or corrective equity declines to stem the dollar’s slide this week.
Regional Highlights
Asia/Pacific
Most Asian currencies are weaker against the greenback, with concerns about FX interventi0n outweighing overall firm data. The Korean won slipped the most as the government said it would take steps to stabilize drastic won movements. The Indonesian rupiah is also down on concerns of FX intervention, and the Thai baht and Taiwan dollar are also lower on speculation those central banks may take steps to stem currency gains. In Singapore, Q3 GDP grew at a 14.9% q/q annualized rate, broadly as forecast, prompting the government to forecast a smaller 2%-2.5% contraction for the full 2009 year. Singapore’s central bank maintained a neutral currency policy (i.e. zero appreciation), also making no change the level or width of the currency band within which the central bank manages Singapore’s currency. India’s August industrial output was stronger than expected, rising 10.4% y/y, while Malaysia’s industrial output fell a smaller than expected 5.7% y/y. New Zealand September house prices also fell by a modest 1.1% y/y. The NZ dollar is little changed, while the Australian dollar is slightly higher.
Europe
There is very little news from Europe today, with only an 8.1% y/y fall in German September wholesale prices of any note. Currency markets meanwhile are paying some attention to equities, which are broadly stronger across Europe. That is helping the euro to maintain a stronger bias, while the Swiss franc is also firmer and the Swedish krona is steady. The Norwegian krone is unusually lower considering higher oil prices, while the British pound is down, extending its underperforming trend.
Americas
The dollar is on the defensive as the new week begins, and while there is no news today, the week ahead does see the release of retail sales, CPI and industrial output, among others. The standout currency today is the Canadian dollar which is up around 0.7% against the buck and at its strongest level since last September. Friday’s firm Canadian employment and business confidence figures still appear to be boosting the Canadian currency. The Mexican peso is also sharply stronger, helped by favorable overall financial market sentiment, and continuing to reverse the weakness seen over the recent weeks. There are a couple of Mexican releases to watch for today: August industrial output is forecast to fall by 6.3% y/y, while July investment spending is forecast to fall by 10.5% y/ y.
Published on Mon, Oct 12 2009, 14:03 GMT
6
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The euro is off its recent highs against the dollar this morning
Fri, Oct 9 2009, 14:05 GMT
by Wells Fargo Research Team
Market Summary
FX markets took notice of the hawkish hints in the Fed Chairman Bernanke’s comments last night. Mr. Bernanke’s mention of future policy tightening, even without any reference to timing has prompted the market to scale down its short dollar positions in advance of the approaching weekend. The Fed Chairman also said that “accommodative policies” (rather than “exceptionally low levels of the federal funds rate”) are likely warranted for an extended period. Only a slight change perhaps, although it does rhyme with the Kansas Fed President Hoenig’s recent remarks that at 1% to 2%, the fed funds rate would still be “very accommodative”. We do think however that given the recent buildup in the dollar’s downward momentum, these remarks are more likely to stall rather than reverse the greenback’s slide in the near term. One exception to the firmer dollar trend today is the Canadian dollar which touched a 1-year high after an unexpectedly st rong September employment report. We see consolidating FX markets for the rest of today’s session.
Regional Highlights
Asia/Pacific
The dollar recovered modestly against the regional currencies after last night’s comments from the Fed Chairman Bernanke. The Japanese yen is weaker, with today’s August machinery orders data (a key indicator of future business investment) undershooting market expectations with a 0.5% m/m rise.
Meanwhile, Japan’s finance minister Fujii weighed in on the issue of the weak dollar today, saying that it is mainly caused by the US monetary policy.
Elsewhere, the New Zealand dollar is slightly weaker against the greenback and the Australian dollar, while emerging Asian currencies are softer with the exception of the South Korean won. South Korea’s central bank left rates steady at 2.00% as expected today and said it “will maintain an accommodative policy stance for the time being”.
Europe
The euro is off its recent highs against the dollar this morning. The greenback’s somewhat improved tone overall and the end-of-week profit taking are probably the explanation for the euro’s moves today. On the data front, Germany’s September CPI registered a 0.5% y/y fall, while the August trade surplus narrowed to 8.1B euros. Other regional data included a slowdown to 1.2% y/y in Norway’s September CPI, and a firming to 0.4% y/y in the UK output PPI. The British pound is underperforming the dollar and the euro this morning, while the Norwegian krone is steady. The Swedish krona recovered somewhat on reports that Latvia is close to reaching an agreement with its international creditors.
Americas
Yesterday’s comments by Fed Chairman Bernanke have so far been the main driver of the FX markets today. Mr. Bernanke said that the Fed will be ready to tighten policy when the economy improves, although he gave few hints on the possible timing of such tightening. He also noted however that economic conditions will “warrant policy accommodation for an extended period”. The dollar recovered somewhat on these remarks, while the unexpected narrowing in US trade deficit to $30.7B in August is also supportive for the greenback.
Meanwhile, the Canadian dollar is the biggest gainer today among the major currencies after a surprisingly strong September employment report which showed a net gain of 30,600 jobs with the unemployment rate falling to 8.4%.
On a less positive note, Canada’s August trade deficit widened to C$2B but the currency is still trading near its 1-year high against the greenback.
Published on Fri, Oct 9 2009, 14:05 GMT
7
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The euro also reached a two−week high against the dollar today
Thu, Oct 8 2009, 13:59 GMT
by Wells Fargo Research Team
Market Summary
Downward pressure on the US dollar showed few signs of subsiding overnight. Australia’s September jobs report surprised on the upside, playing into expectations of further policy tightening by the Reserve Bank of Australia and lifting the Australian dollar to a 14- month high. While the US dollar is slipping broadly, some of the strongest currency performers are found among the growth-sensitive emerging market currencies including the Indian rupee and the Brazilian real. The euro also reached a two-week high against the dollar today. The ECB left rates steady as expected and subsequent comments from the ECB President Trichet did not hint at any significant changes in the current policy stance. Mr. Trichet also made some remarks on the currency markets saying FX volatility is “bad for economic stability” and that a strong US dollar is “extremely important”. These comments were nothing new and we doubt that they will be sufficient to reverse the current near term trend of dollar weakness.
Regional Highlights
Asia/Pacific
The Australian dollar is the best performing major currency today after a stronger than expected jobs report which boosted expectations that the Reserve Bank of Australia will tighten policy further in the coming months.
September employment expanded by 40,600 jobs, with the unemployment rate falling to 5.7%. Firmer global economic data, as well as positive US corporate earnings news combined to give a boost to equities, while weighing broadly on the US dollar, which is weaker against most regional currencies. In addition to the Aussie, the NZ dollar, the ringgit and the rupee are among the gainers today. The rupee is also supported by expectations that central bank policy tightening is likely to start before too long with wholesale prices firming for the fourth straight week. The Japanese yen is a touch firmer as domestic economic data was generally supportive. Japan’s August current account surplus widened to 1.17 trillion yen, while the economy watchers survey rose to 43.1 in September.
Europe
The European Central Bank’s rate decision is the main regional event this morning. The Refi rate was left unchanged at 1.00% as expected and at the subsequent press conference President Trichet gave little away in terms of possible changes to the central bank’s policy stance. Mr. Trichet said that the economy is due to recovery gradually and that current policy rates are “appropriate”, while inflation risks are “broadly balanced”. The Bank of England also kept its policy rate steady at 0.50% and made no changes to its current 175B pounds asset purchase program. The Swedish krona is again underperforming today. Industrial production unexpectedly fell by 2.9% m/m in August, while concerns over the exposure of Sweden’s banking sector to the Latvian economy continue to weigh on the currency.
Americas
The US initial jobless claims fell to 521,000, pointing to some further improvement in the labor markets. However at current levels, jobs claims data is still consistent with the economy losing rather than creating jobs.
Canada’s September housing starts fell by 4.6% m/m in September following a 17.2% m/m surge in August. Brazil’s September consumer prices were close to market expectations, rising at a 4.34% y/y pace. The Canadian dollar and the real are both stronger this morning and so is the Mexican peso ahead of Mexico’s September CPI report.
Published on Thu, Oct 8 2009, 13:59 GMT
5
0
The US dollar remained under pressure overnight
Wed, Oct 7 2009, 13:45 GMT
by Wells Fargo Research Team
Market Summary
It has so far been a game of two halves in the currency markets today. The US dollar remained under pressure overnight, with the Australian and New Zealand dollars extending gains. The Japanese yen also touched a nine-month high against the buck after finance minister Fujii made some relatively benign comments on recent yen strength. Meanwhile, dollar’s weakness also helped gold touch a record high. However, the greenback has subsequently found its footing, bouncing back during the N.American morning. Profit taking on dollar short positions is probably the main driver of the move, although Kansas Fed President Hoenig also made some unusually hawkish remarks by the standards of recent Fed Speak, arguing that rates need to be raised sooner rather than later. Finally, the Swedish krona is under pressure on renewed concerns over the Latvian economy. The krona slipped against the euro and the Norwegian krone where strong industrial production numbers boosted expectations for a central bank rate hike before the end of the year.
Regional Highlights
Asia/Pacific
The Japanese yen rallied to a nine-month high against the dollar this morning, but failed to sustain the initial move. Comments from Japan’s finance minister Fujii were again noted by the market as he said that officials should watch currency markets “calmly”. Meanwhile, yesterday’s rally in the Australian and NZ dollar, initially sparked by the surprise central bank rate hike in Australia, extended further overnight. Both currencies were off their earlier highs at the start of the N.American trading session however, as the US dollar found some support. Emerging Asian currencies, including the ringgit and the rupee are slightly firmer against the buck. Regional economic data was generally positive. Japan’s leading index rose to 83.3 in August, while the decline in Taiwan’s exports slowed to 12.7% y/y in September, the smallest fall in 11 months.
Europe
The biggest currency mover in the region this morning is the Swedish krona as concerns over the Swedish banking sector’s exposure to the Latvian economy are rising again. The krona is softer against the euro but also the Norwegian krone, where a 1.5% m/m rise in the August industrial production appeared to boost expectations for central bank policy tightening to begin before the end of the year. The euro is in consolidation mode this morning, little changed against the greenback. There were some ups and downs in the Eurozone economic data overnight, with Q2 GDP revised lower to a decline of 0.2% q/q (non-annualized) but Germany’s August factory orders up by a firmer than expected 1.4% m/m in August. The Swiss franc is softer after the unemployment rate rose to 4.1% in September, the highest since 1998, while the rise in the UK Nationwide Consumer confidence to 71 had little impact on the pound.
Americas
US data calendars are very light again, and the only release scheduled is the August consumer credit data. Kansas City Fed President Hoenig (an FOMC voter next year) made comments overnight, which could be seen as quite hawkish. He said that as the economy appears to be in a recovery the Fed should begin raising rates sooner than later and that a fed funds rate of 1% to 2% would still be “very accommodative”. Elsewhere in the region, the Canadian dollar is trading near its 1-year high this morning, while the Mexican peso and the Brazilian real ha ve opened slightly weaker.
Published on Wed, Oct 7 2009, 13:45 GMT
0
0
There are no major data releases scheduled in the US today
Tue, Oct 6 2009, 14:08 GMT
by Wells Fargo Research Team
Market Summary
The trend-setting event of the day was the rate hike by the Reserve Bank of Australia. While the move itself was already somewhat of a surprise, it was also accompanied by hints of further tightening ahead, sending the high-flying Australian dollar even higher. It’s notable however that risk aversion is still a theme that continues to dominate global markets, and Australia’s rate hike sparked further optimism that the global economy is firmly en route to recovery, triggering a rally in global equities. A number of other currencies are not far behind the Australian dollar this morning, including the NZ and Canadian dollars and the euro, with only the British pound bucking the trend after weak UK manufacturing data. Not surprisingly, some of the emerging market currencies where central banks are expected to be hiking rates before too long are also gaining ground, including the Indonesian rupiah and the Indian rupee. Global risk appetites are running high and the US dollar is likely to remain under some pressure in the near term.
Regional Highlights
Asia/Pacific
The Reserve Bank of Australia raised its overnight cash rate by 25bp to 3.25% and said that improving global and domestic economic conditions suggested it was “prudent to begin gradually lessening the stimulus provided by monetary policy”, effectively signaling the possibility of further policy tightening. While the Australian dollar has predictably jumped on the news, a number of regional currencies rallied as well, boosted by enthusiasm on economic recovery and prospects of policy tightening across the region. Currencies that are gaining against the greenback today include the New Zealand dollar, the Indonesian rupiah and the Indian rupee, which hit a 1-year high after India’s central bank governor said he may need to tighten monetary policy before the advanced economies. On the data front this morning, Australia’s trade deficit narrowed slightly to A$1.52B in August, while there was some acceleration in CPI inflation in the Philippines to 0.7% y/y in September.
Europe
The euro is gaining today, breaking above its Friday’s highs as the US dollar came under broad pressure after the rate hike in Australia. The ECB is announcing its rate decision on Thursday and while no move in rates is expected, markets will be closely watching for any hints on future policy tightening. The euro also received a boost from a newspaper report (later denied by the Saudi officials) that suggested Persian Gulf states discussed the possibility of dropping the dollar for oil transactions. The euro is also gaining against the British pound, which is notably struggling this morning after UK August industrial production unexpectedly fell by 2.5% m/m. Among other regional data events, Swiss CPI fell by 0.9% y/y in September, while Russia’s September CPI slowed to 10.7% y/y.
Americas
There are no major data releases scheduled in the US today, while the dollar is finding itself under renewed pressure. Rate hike in Australia ramped up hawkish global expectations, while the US Fed speakers continued to follow a cautious tone in recent days. Meanwhile, the US administration is said to be discussing a mix of additional spending programs and tax cuts to address mounting job losses. In Canada, August building permits rose by 7.2% m/m in August, while higher oil prices are boosting the Canadian dollar today. Elsewhere, the Brazilian real is extending its gains after reaching a 1-year high yesterday.
Published on Tue, Oct 6 2009, 14:08 GMT
8
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The Australian and NZ dollars are among the biggest gainers today
Mon, Oct 5 2009, 13:56 GMT
by Wells Fargo Research Team
Market Summary
The dollar is starting the week on the defensive after the G7 made no explicit reference to the US currency in its statement, while reiterating the familiar message that currency volatility is undesirable. That said, there are some notable divergences among currencies today. The yen is little changed after Japan’s finance minister Fujii hinted that intervention remains an option if currencies move “excessively”. The euro and the pound have also struggled to break through their recent highs, despite generally firm domestic data. The ECB and the Bank of England are not expected to make any notable changes to their current policy stance this week. In contrast, expectations are running high for the Reserve Bank of Australia’s meeting tomorrow. While a rate hike cannot be ruled out, market consensus is looking for steady policy but hints on a possible rate move in November. The Australian dollar is the best performing major currency today but could be at a risk of a pullback if the outcome of the central bank’s meeting undershoots the hawkish expectations.
Regional Highlights
Asia/Pacific
The statement after the G7 finance ministers’ meeting over the weekend made no explicit mention of the dollar, while re-iterating that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability”. The greenback is generally weaker this morning, although steady against the yen after Japan’s finance minister Fujii said authorities will take action if “currencies show some excessive moves in a biased direction”. The Australian and NZ dollars are among the biggest gainers today. Australia’s September services sector index rose to 49.3, while New Zealand’s commodity prices rose 6.8% m/m in September, the largest monthly gain in 22 years. The Reserve Bank of Australia’s rate decision is a key event tomorrow, with the market expecting a signal of a possible rate hike in November, although a rate move as early as tomorrow also cannot be ruled out. NZ finance minister English made some comments today saying the New Zealand dollar will weaken against its Australian counterpart based on differences in the outlook for growth and interest rates. Among other noteworthy events in the region, Indonesia’s central bank left rates unchanged at 6.50% as expected and said current rates are “conductive for the process of economic recovery”.
Europe
The euro is firmer this morning, although struggling to break through its Friday’s highs. European data today has been supportive for the currency. The final estimate of the Eurozone September Services PMI was revised slightly higher to 50.9 while retail sales fell by 0.2% m/m in August, a more modest decline than expected. News was also positive for the pound, with the UK Services PMI rising further into “expansion” territory at 55.3 in September. Both the European Central Bank and the Bank of England are meeting this week and are expected to leave their respective policy rates unchanged. The BoE is also not seen making any changes to its quantitative easing program.
Americas
It will be a relatively quiet week for economic data in the US. Today the focus is on the ISM non-manufacturing index for September, expected to move from “contraction” to “neutral” territory at 50. Elsewhere in the region, Chile reported a smaller than expected 0.1% m/m contraction in economic activity in August. The Chilean peso and the real are slightly firmer against the greenback this morning, while the Mex ican peso is little changed.
Published on Mon, Oct 5 2009, 13:56 GMT
1
0
There is a limited range of data from Europe today
Fri, Oct 2 2009, 13:37 GMT
by Wells Fargo Research Team
Market Summary
The dollar is mixed, and its inability to score larger gains following a disappointing U.S. payrolls report could leave the greenback vulnerable to renewed losses in the near future. In addition the headline 263,000 loss of jobs, other details within the employment report suggested some slackening in labor demand. That downside data surprise is weighing on equities, with European bourses down around 2% and U.S. equities futures also sharply lower. But although the dollar did manage some gains immediately after the payrolls release, it has given back most of those gains in subsequent trading. Of particular note from a technical perspective, the euro has so far held above the previous early August peak, which proved to be the ‘breakout’ level for the subsequent September euro gains. Should the euro hold above that key technical level, a renewed drift higher for the European currency could be on the cards. The yen is gaining against the buck, and some further near-term gains seem possible, while other G10 currencies are slightly lower against the greenback in the wake of the payrolls report.
Regional Highlights
Asia/Pacific
The yen is up, helped by unsettled markets and, perhaps, by firm Japanese data. Japanese August employment rose by 290,000 while the jobless rate unexpectedly fell to 5.5%. August household spending was also stronger than expected, rising 2.6% y/y. For most other currencies it was a case of watching the regional equity markets, which were generally down. In fact, foreigners were net sellers of Asian equities for only the second time in the last twentytwo days. For FX markets that meant some Asian currency weakness today.
The Taiwan dollar and Malaysian ringgit both fell against the buck, while the Korean won is up, extending its run as the strongest Asian currency over the past three months. The Australian dollar is down, as is the NZ dollar.
Europe
There is a limited range of data from Europe today. In the U.K., Nationwide house prices rose for a fifth month in September, by 0.9% m/m, while house prices were flat compared to September of last year. Norway’s September manufacturing PMI was also a positive surprise, rising to 47.4, while the Eurozone August PPI fell by 7.5% y/y, a slower pace of decline than in recent months. But it is the U.S. jobs report that market participants are watching even more closely – with those job figures surprising to the downside, equities are lower and European currencies are under modest pressure.
Americas
The U.S. September employment report disappointed, indicating that while the economy is on the path to recovery there will still be bumps along the way.
Nonfarm payrolls fell by a larger than expected 263,000, while other details reinforced the softness of that headline figure. With a shorter workweek, aggregate hours worked were down 0.5% m/m, while the household employment estimate was also down hard, by 785,000. The unemployment rate also rose further to 9.8%, the highest level since 1983. The immediate market reaction was weakness in equities and strength in the dollar, although that reaction has since partially reversed. U.S. August factory orders are forecast to be flat month/month, though are unlikely to attract much attention, while in Brazil industrial output rose for an eighth month in August, by 1.2% m/m. Regional currencies are mostly reacting to the jobs figures and are weaker against the buck – most notably the Brazilian real and Canadian dollar, and to a lesser extent the Mexican peso.
Published on Fri, Oct 2 2009, 13:37 GMT
4
0
Asian currencies are doing better than most
Thu, Oct 1 2009, 14:03 GMT
by Wells Fargo Research Team
Market Summary
The dollar is down, with unsettled financial markets weighing on foreign currencies, and further currency comments weighing on the euro. Asian currencies are doing better than most, with equity markets broadly steady across that region. The IMF did raise its global GDP growth forecast for 2010, but that has done little to help European and U.S. equities, which are both lower. Today’s data was not particularly weak, although there were areas of softness: German retail sales and U.S. jobless claims, for example. In any case, tough going for equity markets is helping the greenback and hurting most other currencies. The drop in the euro also came in the context of further currency comments from European officials. ECB President Trichet, among others, hinted at some concern regarding the euro’s recent advance. Overall financial market enthusiasm has waned slightly but the bounce in the dollar and pullback in the euro, for example, has not yet threatened important technical levels. The next key event is of course U.S. payrolls – we expect FX markets would react most str0ngly to unexpected weakness in that U.S. employment report.
Regional Highlights
Asia/Pacific
Japan’s important Tankan survey provided mixed signals in the Q3 report. The large manufacturers’ diffusion index (a measure of business sentiment) rose to -33 and the large non-manufacturers index rose to -24. Capital spending plans for the year ended March 2010 weakened however, to show a fall of 10.8%. Elsewhere, China’s September manufacturing PMI rose less than expected to 54.3, while on the price front Korea’s September CPI inflation was steady at 2.2% y/y, Thailand’s September CPI inflation was steady at -1% y/y, and Indonesia’s September core CPI inflation edged higher to 4.86% y/y. The Philippines central bank held its benchmark interest rate steady at 4.00% as expected, adding the monetary policy settings were ‘accommodative’ and ‘appropriate’. The Financial Times reported that China is considering limiting expansion in seven key industry sectors, a theme that may be worth monitoring. For today though, regional currencies have held up OK: the rupee, rupiah and Philippines peso are stronger, although the Australian and New Zealand dollars are down against the buck.
Europe
The strength of the euro is attracting some attention from European officials. ECB President Trichet said excess volatility in currency markets may have ‘adverse implications’, while European finance ministers will discuss the euro’s gains ahead of this week’s G7 meeting. Eurozone data was negative overall: the September manufacturing PMI was revised up to 49.3, but Germany’s August retail sales fell 1.5% m/m. The U.K. September manufacturing PMI surprised to the downside, dipping to 49.5. The news was better in Switzerland and Sweden, where manufacturing PMIs increased to 54.3 and 55.9 respectively. The euro, Swiss and Scandinavian currencies are all down against the buck, with just the pound holding steady.
Americas
U.S. August consumer spending jumped 1.3% m/m, boosted by spending on autos, while consumer incomes edged up 0.2% m/m. Inflation trends remain very tame, with core PCE inflation edging lower to 1.3% y/y as forecast. Initial jobless claims rose by 17,000 to 551,000, although continuing claims fell by a further 70,000 to 6,090,000. There is still plenty of news to come today. The September ISM manufacturing index is expected to rise further to 54.0, September auto sales figures are released during the day, and August pending home sales are forecast to rise 1% m/m. Brazil’s September trade balance is also released, with the surplus forecast to narrow to US$2.2B. In FX markets the Canadian dollar is steady while Lat in currencies are weaker.
Published on Thu, Oct 1 2009, 14:03 GMT
7
0
Regional currencies are advancing against the dollar this morning
Wed, Sep 30 2009, 14:18 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are choppy and volatile this morning, perhaps not surprisingly so given the month and quarter end position adjustments that are likely taking place. The euro rose on the news of lower demand for ECB funds from the region’s banks, seen as a sign of stabilizing economic and financial conditions, but has subsequently given back some of its gains. Meanwhile, the sharp sell-off in the Swiss franc this morning against the dollar and the euro almost surely reflects the Swiss National Bank stepping into the market, although there has been no official comment so far. One of the more clear trends today is the better than expected economic data worldwide, which boosted equities and commodities, also lending support to the likes of the Australian and New Zealand dollars and the Norwegian krone. Today’s markets are best approached with caution, and while the dollar appears somewhat vulnerable overall, we would be wary of a possibility of a sharp intra-day bounce back.
Regional Highlights
Asia/Pacific
Regional currencies are advancing against the dollar this morning. With risk appetites on the rise, it is not surprising to see the Australian and New Zealand dollars among the largest gainers. In both cases positive economic news has provided support, with Australia’s retail sales bouncing by 0.9% m/m in August and New Zealand’s business confidence advancing to 49.1 in September. The Japanese yen is higher on what is likely a combination of Japanese fiscal half-year end repatriation flows and some positive economic news. Japan’s industrial production rose by 1.8% m/m in August, a sixth straight monthly gain. Bucking the regional and global trend for firmer economic data this morning was the unexpected 1.3% m/m decline in South Korea’s industrial production, although the won is stronger today along with other emerging Asian currencies.
Europe
The ECB announced this morning that the Eurozone banks bid for 75.2B euros at the auction for 12-month funds – significantly less than at the previous auction in June. More modest demand for emergency funds was seen as a sign of improvement in the economic and financial conditions in the Eurozone, giving a boost to the euro, although the move was later partly reversed. Economic news from the European region has been mostly positive today, helping regional currencies. Germany’s jobless total unexpectedly fell by 12,000 in September, bringing the unemployment rate down to 8.2%, while the Eurozone September CPI fell by 0.3% y/y. Norway’s retail sales rose by 0.3% m/m in August, while the Swiss KOF leading indicator improved to 0.85 in September, the highest level since July 2008. During the North American morning the Swiss franc fell sharply versus the euro and the dollar, prompting suspicions (unconfirmed) that the Swiss National Bank stepped into the market to sell the currency.
Americas
US economic data was somewhat of a mixed bag this morning. The ADP September employment survey showed a net fall of 254,000 private sector jobs, somewhat of a negative sign for Friday’s official non-farm payrolls report. However, Q2 GDP was unexpectedly revised to a smaller decline of 0.7% q/q (annualized), the best performance in more than a year. In contrast, Canadian July GDP numbers disappointed with a flat m/m outcome this morning. The Canadian dollar is still stronger this morning however, along with other commodity currencies.
Published on Wed, Sep 30 2009, 14:18 GMT
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Currency markets are still displaying mixed trends today
Tue, Sep 29 2009, 13:59 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are still displaying mixed trends today, with month and quarter end flows as well as official FX ‘jawboning’ emerging as the main market drivers so far this week. There were some noteworthy comments from the ECB President Trichet yesterday who said that it was “extremely important to have a strong US dollar”. The fact that these remarks were later echoed by other Eurozone policy makers suggest they were not off the cuff and may be the first sign that the current valuation of the euro (the currency’s trade weighted real exchange rate is some 18% above its 20-year average) is attracting some attention. Other official commentary on FX included further backtracking by Japan’s Finance Minister Fujii from his earlier strong yen position and a reminder from the Bank of Canada’s Carney that he still fears Canadian dollar strength will hurt economic recovery. The net result has been some general US dollar strength, although this may be a reflection of a reduction in short speculative positioning rather than a trend turnaround for the greenback.
Regional Highlights
Asia/Pacific
The Japanese yen is somewhat weaker today after the finance minister Fujii appeared to backtrack further on his earlier yen bullish comments, saying that the government will “take steps” if the currency acts abnormally. On the data front, Japan’s August CPI fell by 2.2% y/y at the headline in line with the July fall, but the negative trend accelerated at the core rate to 2.4% y/y. Also released today, Japan’s small business confidence rose to 43.5 in September.
The Australian and New Zealand dollars are steady this morning against the dollar despite the greenback’s gains elsewhere, while emerging Asian currencies are little changed with the exception of the Korean won which is stronger.
Europe
The euro’s softness this morning is perhaps in part a belated reaction to noteworthy comments from the ECB President Trichet yesterday who said that it is “extremely important to have a strong US dollar”. These remarks, later echoed by ECB’s Nowotny and the Eurogroup’s Juncker could be seen as a veiled attempt to talk down the euro, even though actual FX intervention is still a very remote option. Other regional currencies, including the Swiss franc and the Swedish krona are also slipping against the dollar, with a firmer pound today being an exception to that trend. In part, the dollar’s strength has been attributed to lower risk appetites after Russia’s central bank cut rates by 50bp to 10.00%. Of relevance to the currency markets, the central bank also said it is considering adding the Australian and the Canadian dollars to its reserve currencies. Regional economic data has had only a limited impact today. Highlights include the Eurozone economic confidence rising to a 12- month high of 82.8 in September, the UK Q2 GDP revised to 0.6% q/q decline (non-annualized), and a 2.1% m/m decline in Sweden’s August retail sales.
Americas
The S&P/Case-Shiller measure of US house prices showed a 1.6% m/m rise in July, translating into further slowing in the pace of y/y declines to 13.3%. Later today, US September consumer confidence is expected to improve to 57.0. There are no data releases scheduled in Canada today, while the central bank governor Carney repeated yesterday that rates will be on hold until Q2 of 2010 and that “persistent strength” in the Canadian dollar could hurt the recovery and keep inflation below the central bank’s target. The Canadian dollar is slightly weaker this morning as are the Brazilian and Mexican currencies.
Published on Tue, Sep 29 2009, 13:59 GMT
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The IMF's currency views should carry more weight going forward
Mon, Sep 28 2009, 13:45 GMT
by Wells Fargo Research Team
Market Summary
Currency trends are mixed at the start of the new week, highlighted by the dollar falling to an eight month low against the Japanese yen but rising to a four month high against the British pound. The yen remains susceptible to the conflicting comments of the finance minister Fujii who spoke in favor of non-intervention in the currency markets, but also appeared to be backtracking on his earlier comments supporting a stronger yen. Either way, we suspect the market impact of his remarks will start fading going forward, while the yen’s strength may be primarily a reflection of more cautious equity market sentiment and fiscal half-year repatriation flows. On the global policy front, one of the outcomes of the G20 summit is that it will now replace the G7 as the main global economic forum. Within that framework, the International Monetary Fund said it will assume a more active role with regards to commenting on currency issues. While this is unlikely to be a ‘game changer’ for FX markets, the IMF’s currency views should carry more weight going forward.
Regional Highlights
Asia/Pacific
The Japanese yen is the strongest major currency this morning, touching an 8-month high against the greenback against the backdrop of somewhat conflicting messages from Japan’s finance minister Fujii. After noting that the yen moves were not abnormal and that it would be a mistake to artificially influence the exchange rate he appeared to be backtracking on his earlier comments supportive of a stronger yen. As many commentators have pointed out, fiscal half-year end repatriation flows are probably contributing to yen strength as did today’s equity market softness. The latter also weighed on the Australian and New Zealand dollars early on, although both currencies have subsequently bounced back. Emerging Asian currencies are slightly weaker versus the dollar today, including the rupiah and the won.
Europe
The British pound has extended its recent softness, falling to a four-month low against the dollar this morning. While softer equity markets are a factor today, the pound also continues to slip against the euro, suggesting that the Bank of England’s policy stance and its recent currency-negative comments are also playing a role. Meanwhile there was some moderately positive news for the UK housing market today with the Hometrack measure of house prices rising by 0.2% m/m in September. The euro started on a weaker footing as well, although news from Germany’s elections that a center-right coalition led by chancellor Merkel has the sufficient numbers to form a parliamentary majority has helped to euro to take back some of its earlier losses. On the economic data front, numbers from several German states showed y/y CPI inflation turning negative in September. Elsewhere, Hungary’s central bank cut its policy rate by 50bp to 7.50% as expected. The third consecutive monthly reduction comes against the background of still challenging economic conditions with the jobless rate climbing to 9.9% in August.
Americas
There are no major economic releases scheduled in the US today. The US data calendar will however pick up significantly towards the end of the week with the release of the September manufacturing ISM report on Thursday and Friday’s non-farm payrolls. The greenback continues to recover moderately against most currencies, while the Canadian dollar is slightly weaker as oil prices remain fairly subdued this morning. The Brazilian real and the Mexican peso are little changed at the start of th e week.
Published on Mon, Sep 28 2009, 13:45 GMT
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The tone for next week should be set by the details of the G20 announcement
Fri, Sep 25 2009, 13:39 GMT
by Wells Fargo Research Team
Market Summary
The dollar is modestly stronger against most G10 currencies, extending the trend seen in recent days. Policy themes seem to be the main focus today. Firstly, Federal Reserve Governor Warsh writing in the Wall Street Journal said that the Fed might need to begin normalizing policy before it is obvious it is necessary, and with greater force than usual. Those comments are a possible factor behind today’s mixed equity markets, and decline in U.S equity futures. Secondly, the G20 leaders’ summit may be contributing to market caution: the pre-meeting signals are the leaders will agree on new rules for banker compensation and bank capital requirement, though on a more favorable note it seems that stimulus measures will be maintained for now. An official G20 statement is not scheduled until late afternoon/early evening. While most currencies are down versus the buck, the yen is the key exception, trading briefly through JPY90.00. Comments from the new finance minister continue to support the yen. Overall we believe the dollar will finish this week on a stronger note, while the tone for next week should be set by the details of the G20 announcement.
Regional Highlights
Asia/Pacific
The yen is the strongest of the major currencies today, partly on comments from Japanese finance minister Fujii ahead of G20 meeting. While not explicitly endorsing a strong yen, he noted that the G20 had previously argued against a “deliberate weaker-currency policy”. There are also reports that Japanese exporter repatriation back into yen is supporting the currency. In other news, Singapore’s August industrial output rose 12.3% y/y, stronger than expected and the fourth gain in five months. Chinese business sentiment improved in July, while in New Zealand the August month trade deficit was wider than expected at NZ$725M. The Australasian currencies are slightly firmer. The Korean won jumped 0.8% against the buck as foreigners continue to be net buyers of Korean equities, while other regional currencies are mixed.
Europe
Today’s European data was generally subdued. Eurozone M3 money growth slowed further in August to just 2.5% y/y, while loan growth to the private sector slowed to a standstill at 0.1% y/y. And ECB policymaker Mersch said the central bank should not withdraw its emergency stimulus measures before markets are functioning properly. The euro is down slightly against the greenback. Swiss National Bank policymaker said the Swiss economy was clearly doing better now but it was still uncertain whether recovery is sustainable. He added that the central bank won’t accept Swiss franc appreciation versus the euro, and that the central bank would act with “full force” to achieve that. Still, the Swiss franc is only slightly lower, while the pound is the weakest of the G10 currencies, continuing its underperformance of recent days. Yesterday, Israel’s central bank held its benchmark interest rate at 0.75%, refraining from further monetary tightening at this time.
Americas
U.S. August durable goods orders fell 2.4% m/m, while core durable goods orders fell 0.4% m/m. The result was weaker than expected, but comes after large gains in prior months. Later today August new home sales are expected to rise 1.6% m/m to a 440,000 annualized selling pace, while Michigan September consumer sentiment should be revised up slightly to 70.5. Federal Reserve Governor Warsh is attracting some attention: writing in the Wall Street Journal he said the Fed may need to tighten earlier and with greater force than might appear obvious. Colombia’s central bank makes its interest rate announcement today, and should hold rates steady at 4.50%. Finally, Brazil’s central bank raise its CPI forecast to 4.2% for 2009 and 4.4% for 2010, though both are still below the in flation target.
Published on Fri, Sep 25 2009, 13:39 GMT
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The New Zealand dollar is the strongest regional currency for a second day
Wed, Sep 23 2009, 13:31 GMT
by Wells Fargo Research Team
Market Summary
The dollar is holding steady overall ahead of today Federal Reserve monetary policy announcement. The greenback has lost ground against some G10 currencies – notably the Norwegian krone after a hawkish statement by Norway’s central bank, and against the New Zealand dollar after better than expected GDP data for that country. Asian currencies are also firmer on balance, helped by global equity markets that are mostly stronger today. But the greenback is holding steady against other currencies such as the euro and the yen – a brief pause for the euro after strong gains in recent days. As for the dollar reaction to the monetary policy announcement, the less the Fed says today the less helpful that will be for the dollar. Any hints of a shift away from the current super-easy monetary policy would support the buck, either from the perspective of increased U.S. interest rate expectations, or potentially through safe-haven support for the dollar were the Fed’s comments to prompt equity volatility. But is likely too early for the Fed to signal any shift just yet and thus the Fed announcement might be a dollar-negative rather than a dollar-positive event.
Regional Highlights
Asia/Pacific
The New Zealand dollar is the strongest regional currency for a second day, once again boosted by firm economic figures. Q2 GDP unexpectedly rose by 0.1% q/q, while the annual decline slowed to 2.1% y/y. The NZ dollar posted a fresh 2009 high. Among the other Asian currencies, the Thai baht and Korean won also rose to new 2009 highs. Asian equity markets are mixed, but overall global equities are stronger, a supportive factor for the regional currencies, while foreigner were also net buyers of Asian equities for a fifteenth straight day. The Taiwan dollar was broadly steady even as local data disappointed: a 12% y/y drop in August export orders and a 9.6% y/y drop in August industrial output. The yen is slightly weaker, consistent with today’s more favorable overall market conditions.
Europe
Today’s European data is firmer on balance, but not firm enough for the euro to add to its recent gains. The Eurozone September manufacturing PMI rose to 49.0, still slightly in contraction territory, while the services PMI rose to 50.6, slightly in growth territory. Eurozone July industrial orders were also firm, rising 2.6% m/m. In France, September business confidence rose to 85, the highest level since last October, but August consumer spending unexpectedly fell by 1% m/m. One currency that is moving is the Norwegian krone, which is up more than 1% against the greenback. Norway’s central bank held its deposit rate at 1.25% at its monetary policy announcement, but added that it had considered raising rates at today’s meeting. The Bank of England’s monetary policy minutes indicated a steady policy stance: a unanimous vote to hold the policy interest rate at 0.50%, and a unanimous vote to keep the central bank’s asset purchase program at 175B pounds. The British pound is higher against the dollar.
Americas
Today’s key event is the Federal Reserve’s monetary policy announcement.
We expect no change in the fed funds target range of 0%-0.25%, or to the size of the Fed’s bond purchase program. The accompanying statement may be slightly more optimistic on the economic, but we would expect the Fed to repeat that low rates will be warranted for an extended period. We also suspect it is too early for the Fed to allude to an exit strategy from superaccommodative policy stance at this point. The only other event to look for is Mexico’s July retail sales, where a smaller decline of 4.3% y/y is forecast by economists.
Published on Wed, Sep 23 2009, 13:31 GMT
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After a brief reprieve the dollar is once again on the defensive
Tue, Sep 22 2009, 13:50 GMT
by Wells Fargo Research Team
Market Summary
After a brief reprieve the dollar is once again on the defensive, setting fresh 2009 lows against the euro, Swiss franc, Swedish krona and New Zealand dollar today. Some positive news during the Asian trading session in the form of upgraded economic forecasts for the Asian region got the ball rolling, and while Asian equity markets are stronger on balance, it is the European and U.S. equity markets that are enjoying the largest gains. The move is the New Zealand dollar is of particular note, up more than 2% against the greenback, on the back of very good economic data and news. Clearly market participants are reluctant to let go of the current bearish dollar bias, and with the Federal Reserve unlikely to adjust either the fed funds rate or its bond purchase program at tomorrow’s monetary policy announcement, that event may do little to change market sentiment. There are also mixed market views on whether the G20 leaders’ summit will do much to help the dollar. Finally in other markets, in addition equity strength, commodity prices are rising and global bond yields are higher.
Regional Highlights
Asia/Pacific
Most Asian currencies are firmer on a day when the Asian Development Bank upgraded its economic outlook for the region. The Bank predicts that Asia (excluding Japan) will grow 3.9% in 2009, compared to a projection of 3.4% in March. Growth is forecast to accelerate to 6.4% in 2010. In the only other Asian release, Hong Kong’s August CPI fell a larger than expected 1.6% y/y. The Singapore dollar is enjoying the largest gain today, followed by the Indian rupee and Philippines peso. The rupee reached its strongest closing level in six weeks. Down under, the New Zealand dollar is up more than 2% against the greenback. The Q2 current account showed a quarterly surplus of NZ$124M, the first quarterly surplus since 2003. The year-ended June current account deficit narrowed sharply to 5.9% of GDP. The NZ dollar was also boosted by the increase in the forecasted milk payout to dairy farmers. The Australian dollar is also firmer, as is the Japanese yen.
Europe
European currencies are benefiting from a broadly weak dollar, with only a limited menu of news today. The Swiss government pared back the forecast decline in 2009 GDP to 1.7% from its previous estimate of 2.7%, while the economy is seen growing a modest 0.4% in 2010. Switzerland’s August trade surplus narrowed to 1.79B Swiss francs, though in real seasonally adjusted terms there was a 2% m/m rise in exports, compared to a 2.5% m/m drop in imports. The Swiss franc is at a new high against the dollar for the year. Among the currencies the Swedish krona and Norwegian krone are up more than 1% against the buck. The euro and British pound are laggards among the G10 today but the euro’s move in particular is significant, reaching a new 2009 high against the greenback. Elsewhere, South Africa’s August CPI slowed to 6.4% y/y while the central bank held its benchmark interest rate at 7.00%, both as expected.
Americas
Canada’s July retail sales were a disappointment, showing an unexpected decline of 0.6% m/m, and a 0.8% m/m fall in sales excluding autos. Later today U.S. July house prices are expected to rise by 0.5% m/m, while Mexico’s August unemployment rate is forecast to dip to 6%. The Canadian dollar is ignoring today’s economic news and enjoying respectable gains against the greenback, while the Mexican peso and Brazilian real are also enjoying sizable gains against the dollar.
Published on Tue, Sep 22 2009, 13:50 GMT
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The Canadian dollar is consolidating around its recent highs this morning
Thu, Sep 17 2009, 13:57 GMT
by Wells Fargo Research Team
Market Summary
The dollar is consolidating this morning after dropping to a fresh one-year low on a trade-weighed basis. Equities remain firm, while global economic data was mostly close to market expectations, including US housing and jobless claims. The dollar’s continued vulnerability is probably explained by the lack of confidence on behalf of the market in the ‘exit’ strategies from the fiscal and monetary easing. Technicals point to further dollar downside in the near term, although short speculative positioning on the greenback is looking somewhat overextended. Today was also a case study in the central bankers’ ability to ‘jawbone’ the FX markets. The BoJ governor spoke favorably on the yen but the currency is weaker, the Swiss National Bank said it stands ready to sell the currency but did not act, and the franc reversed its earlier losses. South Africa’s central bank had more success as its comments pushed the rand lower, although as the Bank of Israel’s recent experience suggests, even an actual intervention is more likely to slow rather than reverse currency moves.
Regional Highlights
Asia/Pacific
The Bank of Japan left rates unchanged at 0.10% and upgraded its assessment of the economy although it also made clear that it is still concerned about downside risks to growth. While currency policy is typically the domain of the finance ministry, central bank Governor Shirakawa also made some remarks on the yen, saying that a strong currency adds to deflationary pressures but may support the economy over the long-term. The yen is however weaker today having steered clear of a key psychological resistance level against the dollar, while the Australian and New Zealand dollars are also taking a step back this morning. Elsewhere, emerging Asian currencies are slightly firmer against the buck with the exception of the Singapore dollar. Singapore’s August non-oil domestic exports came in close to expectations today, showing a rise of 1.3% m/m.
Europe
The key regional event this morning is the Swiss National Bank’s policy meeting. The target for the 3M Libor rate was left unchanged at 0.25% as expected, while the central bank repeated it will continue to firmly counter franc appreciation despite noting some easing in deflationary pressures. Central bank intervention fears were weighing on the franc going into the rate decision, however the lack of actual FX intervention today or recently has triggered a rebound in the franc. South Africa’s attempts to talk down the rand were more successful today as the currency is weaker after Governor Mboweni said currency gains are “overdone”. The euro is consolidating this morning after August trade surplus widened to 6.8B euros. The pound is slightly firmer against the backdrop of mixed economic data. August retail sales undershot expectations with a flat m/m outcome, but September CBI manufacturing orders index improved to -48.
Americas
US housing data this morning was close to expectations, and showing some further improvement from very weak levels. August housing starts rose by 1.5% m/m and permits by 2.7% m/m. Meanwhile, the weekly jobless claims fell to 545,000, although continued claims rose on the week. Later today, the Philadelphia Fed September manufacturing survey is seen rising to 8. Elsewhere, Canada’s August CPI was close to market expectations, showing a fall 0.8% y/y at the headline and slowing to 1.6% at the core, while the August leading indicators jumped by 1.1% m/m. The Canadian dollar is consolidating around its recent highs this morning.
Published on Thu, Sep 17 2009, 13:57 GMT
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The euro is adding to its recent gains
Wed, Sep 16 2009, 14:04 GMT
by Wells Fargo Research Team
Market Summary
The downward pressure on the US dollar is showing few signs of abating this morning, with the greenback down to the lowest levels for the year. Technical factors have been key for the currency markets recently and the dollar’s trade-weighted index is now approaching a key support level extending from September 2008. Other currencies approaching or testing key technical and psychological levels against the buck are the euro and the yen. The yen’s strength today is explained by currency bullish comments from Japan’s incoming finance minister, but we still doubt that the Japanese authorities’ new ‘hands-off’ approach to the currency justifies a change to our bearish medium-term yen outlook. Elsewhere, the Australian and NZ dollars are touching new multi-month highs while the Canadian dollar is testing its 2009 highs. One notable underperformer this morning is the British pound, seemingly struggling to recover from the dovish central bank comments yesterday.
Regional Highlights
Asia/Pacific
Japanese yen strength is notable this morning as the currency approaches a key psychological threshold. Japan’s incoming finance minister Fujii made some prominent comments this morning, saying he does not support a weak yen and that he does not see the recent currency moves as excessively rapid. A higher yen is also consistent with a broadly weaker US dollar theme today while the Australian and NZ dollars have also touched new multi-month highs. Emerging Asian currencies are stronger, led by the Indonesian rupiah, which touched the highest level since October 2008 after Moody’s upgraded Indonesia’s sovereign rating by one notch to Ba2. The Korean won is also firmer after the unemployment rate held steady at 3.8% in August.
Europe
The euro is adding to its recent gains, testing a key technical resistance level against the dollar. While the final estimate of the Eurozone August CPI confirmed a 0.2% y/y decline, euro’s strength is to a large extent a reflection of more optimistic market sentiment and the dollar’s overall vulnerability.
The pound is still a notable underperformer in the region, largely failing to bounce back after dovish central bank comments yesterday. Today’s UK data showed August jobless claims rising by 24,400 in line with expectations, while the jobless rate rose to 7.9% in July. Meanwhile, the Swiss franc is steady against the dollar and down against the euro despite an encouraging 1% y/y rise in real retail sales in July. Regional emerging currencies are mixed this morning with the Israeli shekel slightly weaker on central bank intervention.
Americas
There were generally few surprises in the US August CPI release this morning. Headline inflation rose by 0.4% m/m driven by higher energy prices, which translated into some slowing in the rate of the y/y decline to 1.5%. Core inflation slowed to 1.4% y/y. These numbers should be of little surprise to the Fed, while subdued core inflation reflects the large amount slack in the economy. Meanwhile the current account deficit narrowed less than expected in Q2 to $98.8B. Treasury’s international capital flows data showed a smaller than expected net long-term inflow of $15.3B in July, while industrial production rose by a firmer than expected 0.8% m/m in August. The Canadian dollar is trading near 2009 highs, with the combination of higher oil prices and a 5.5% m/m gain in manufacturing shipments in July positive for the currency today. The Brazilin real is also touching multi-month highs on speculation of an imminent credit ratin g upgrade.
Published on Wed, Sep 16 2009, 14:04 GMT
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Currency markets are mixed, looking for a theme and direction
Tue, Sep 15 2009, 13:35 GMT
by Wachovia Research Team
Market Summary
Currency markets are mixed, looking for a theme and direction. After significant gains against the dollar seen in recent sessions most major currencies are in a consolidation mode. Overnight, a balanced tone of the minutes from the Reserve Bank of Australia’s policy meeting and some dovish comments from the Bank of England Governor King have contributed to a more subdued tone in the Australian dollar and the pound. It’s also notable that emerging market currencies are outperforming the majors today. US August retail sales jumped above expectations and while the boost from the government’s auto incentive program was well anticipated, the underlying data is also encouraging. US Treasury yields are higher and so is the dollar after the numbers. We would still treat today’s positive link between data and the dollar with caution. There have been a lot of false starts for this more conventional data-currency relationship in recent months and today’s trends may simply be a reflection of the mar ket scaling down its extreme dollar bearish stance.
Regional Highlights
Asia/Pacific
Currency trends are mixed this morning, with one notable feature being the outperformance by the emerging currencies versus the majors. The yen, Australian and NZ dollars are all weaker against the greenback while the rupiah and the won are stronger. One emerging market currency bucking the trend is the Singapore dollar after retail sales fell by a larger than expected 1.6% m/m in July. Among other market relevant events were minutes from the Reserve Bank of Australia’s last policy meeting, which probably came as a slight disappointments to the hawks. Policymakers saw steady rates as the “best balance” for the moment between controlling inflation and stimulating recovery. Regional data this morning included a 75.1% y/y decline in Japan’s machine tool orders and 3.7% q/q fall in Australia’s dwelling starts.
Europe
The euro is weaker this morning after the Eurozone and US data. Germany’s ZEW economic sentiment survey rose to a three-year high of 57.7 in September, although it did undershoot market expectations for an even stronger rise. Meanwhile, Governor King said the Bank of England is looking at lowering the rate it pays banks to deposit money with the central bank.
These comments are weighing on the pound this morning despite a smaller than expected slowing in the UK CPI to 1.6% y/y in August and encouraging UK house price data. Moving on to politics, the current centre-left government won re-election in Norway, while the Czech parliament is in a stalemate ahead of a possible self-dissolution vote. Both events have had little impact on the respective currencies so far.
Americas
US August retail sales jumped by 2.7% m/m, beating even the already optimistic market expectations. The sharp rise in the headline number is not surprising given a boost from the government’s ‘cash for clunkers’ program, however the 0.6% m/m rise in the ex autos and gasoline measure is a welcome sign for the US consumer. Meanwhile the US August PPI was also stronger than expected at with a gasoline-driven 1.7% m/m rise and the New York State Manufacturing index rose to 18.88. The dollar’s reaction to the numbers is mixed with early weakness quickly reversed. Elsewhere, the Canadian dollar is little changed after Q2 labor productivity remained flat q/q. The Brazilian real is also steady after July retail sales came in close to expectations, showing a 5.9% y/y rise.
Published on Tue, Sep 15 2009, 13:35 GMT
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There are no major releases scheduled in the US today
Mon, Sep 14 2009, 13:55 GMT
by Wells Fargo Research Team
Market Summary
The unfolding of a trade dispute between the US and China is restraining risk appetites this morning and providing a breather to US dollar weakness. The greenback is advancing across the board, but it will take a much larger move to reverse the sharp declines of last week, exacerbated by the break of key technical levels. While many have pointed out to the US fiscal deficit as the fundamental justification for a weaker dollar, the dollar’s real deficit appears to be that of confidence in the financial authorities’ ability (and some say willingness) to pursue fiscal discipline once the economy is out of the woods. We still believe those fears are overdone, and see few fundamental reasons for a period of sustained dollar weakness. There will be several data releases of note in the coming days. The initial news is somewhat disappointing including a fall in NZ retail sales and in the Eurozone employment and industrial production. This suggests central banks are likely to stay the dovish course, leaving the FX market looking to equities for direction.
Regional Highlights
Asia/Pacific
The main regional news is China’s announcement of dumping and subsidy probes of US chicken and auto products after the US administration imposed tariffs on tire imports from China. Fears of an escalating trade dispute are weighing on global market sentiment, also reflected in weaker equity markets and a stronger US dollar this morning. The Japanese yen’s weakness today is slightly surprising, although of course this comes after the yen managed a robust performance last week despite rising risk appetites. On the data front, Japan’s July industrial production was revised higher to show a gain of 2.1% m/m. Meanwhile, New Zealand retail sales disappointed with a 0.5% m/m decline in the headline and the ex-auto measures in July, putting pressure on the NZ dollar. The Australian dollar is somewhat weaker as are emerging Asian currencies such as the rupee, the ringgit and the rupiah.
Europe
The euro is taking a (small) step back this morning with weaker global equities the apparent culprit. The Eurozone data this morning was also somewhat disappointing. Industrial production fell 0.3% m/m in July, while employment fell by 0.5% q/q in Q2. Still, the euro has at the moment only retraced a modest portion of its recent gains and unless a deeper correction ensues, the euro still appears on the positive track. The British pound is also lower, and underperforming the euro, while the Swiss franc is holding up relatively well after the decline in Swiss producer and import prices slowed to 5.5% y/y in August. The Swiss National Bank holds a policy meeting this week and is expected to maintain the target for the 3M LIBOR rate at 0.25%. We also expect the central bank to re-iterate its warnings that it will stand in the way of further Swiss franc strength. Elsewhere, there were some notable comments from Russia’s finance minister this morning who said that “the Russian rouble's exchange rate is not expected to change over the next three years”.
Americas
There are no major releases scheduled in the US today, while President Obama will be speaking on financial markets and regulation. The US-China trade dispute is capturing the headlines this morning but by tomorrow the focus is likely to shift to the August retail sales release, where the market is bracing for a strong result thanks to the ‘cash for clunkers’ auto sales boost. In Canada, industrial capacity utilization fell to a record low of 67.4% in Q2, while softer oil prices are weighing on the Canadian dollar today.
Published on Mon, Sep 14 2009, 13:55 GMT
1
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The dollar is on the defensive again
Fri, Sep 11 2009, 13:59 GMT
by Wells Fargo Research Team
Market Summary
The dollar is on the defensive again, rounding out what has been a tough week for the U.S. currency. The greenback’s poor performance is a reflection of both improving market conditions (and thus less safe haven support), and broad dollar weakness, with the latter theme being inspired by the break of key technical levels. Both themes are in play today. A firm set of Chinese economic figures is boosting most global equity markets and most international currencies. But it is not just improving risk appetites that are behind today’s moves – the yen is the strongest of all of the G10 currencies, suggesting the price action has as much to do with anti-dollar sentiment than with safe-haven outflows. Right now technicals appear to be the primary influence: after the euro breached its August high for example, market participants seem to be target the next obvious peak, from last December. Given the search for those new technical targets dollar losses look likely to continue in the near term.
Regional Highlights
Asia/Pacific
Perhaps the most important driver of today’s FX markets is strength evident in today’s range of Chinese economic data. August retail sales firmed to 15.4% y/y and industrial output firmed to 12.3% y/y. The August trade surplus was higher than expected at $15.7B, while the decline in the CPI slowed to 1.2% y/y. M2 money growth also quickened slightly to 28.5% y/y, while new loans also firmed in August, suggesting that policy setting remain relatively accommodative for the time being. Those positive Chinese signals are contributing to strength in most global equity markets and most regional currencies, including the rupee, won, and Singapore dollar. The rupee’s gain came despite a slowing in July industrial output to 6.8% y/y, while in Japan August consumer confidence rose to 40.4, while Q2 GDP was revised to show a smaller 0.6% q/q gain. The strength on the yen today is unusual against a favorable market backdrop, and many reports are citing repatriation by Japanese exporters. The New Zealand dollar is higher, while the Australian dollar is lower.
Europe
There are just a couple of releases of note today. Sweden’s Q2 GDP edged up 0.2% q/q, after four straight quarters of decline. In the U.K., the decline in producer input prices slowed to 7.5% y/y in August, while the rise in producer output prices ticked higher to 0.8% y/y. ECB policymaker Bini-Smaghi made some mixed comments on monetary policy, saying it was not yet time for an exit strategy (from emergency policy settings), but also that monetary tightening can’t wait until inflation occurs. The Norwegian krone is the strongest of the European currencies today, while the euro and pound are also enjoying modest advances.
Americas
U.S. August import prices rose 2% m/m, while later today September Michigan consumer sentiment is expected to rise to 67.5, and the August monthly budget statement is expected to show a deficit of $139.5B. The news from Brazil is good, with Q2 GDP rebounding by 1.9% q/q, a stronger than expected result. Later today, the decline in Mexico’s July industrial output is forecast to slow to 9.1% y/y, and the decline in June investment spending is forecast to slow to 11% y/y. The Brazilian real is down despite the positive data surprise and the Mexican peso is weaker, while the Canadian dollar is unchanged and the Chilean peso is firm er.
Published on Fri, Sep 11 2009, 13:59 GMT
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Regional currencies are steady to lower
Thu, Sep 10 2009, 13:44 GMT
by Wells Fargo Research Team
Market Summary
Some caution has returned to FX markets today, and the dollar is mixed and the yen is stronger – a better performance for both currencies than in recent days. However dollar sentiment is still fragile, and the path of least resistance for the dollar is still clearly to the downside in the near-term. For much of today’s trading the dollar and yen actually made headway against the other G10 currencies. Some Chinese comments throwing doubts on the strength of that country’s recovery and weakness in European and U.S. equities played a part as well. But the dollar dipped after the release of U.S. figures – favorable jobless claims (suggesting improved risk appetites) and a wider than expected trade deficit. Seemingly, market participants are inclined to look at most data and news from a dollar negative perspective, and the price action is suggestive of some continued dollar decline in the very near-term. That’s despite other markets that are not throwing out bullish growth sign als today: government bond yields are lower, as are gold and most commodity prices.
Regional Highlights
Asia/Pacific
Regional currencies are steady to lower as an element of caution returns to FX markets. Part of that caution stems from comments from Chinese Premier Wen, who said the country’s recovery was unstable and unbalanced, and said that China will not pull back from its economic stimulus measures. The Reserve Bank of New Zealand held its Cash Rate at 2.50%, but did not rule out the possibility of further easing. The New Zealand dollar is hardly changed. The Bank of Korea held its policy rate 2.00%, and hinted that it could raise rates if property prices or mortgage lending surged. In Australia, the recent run of soft data continued. August employment fell by 27,100 and the jobless rate stayed at 5.8%. Japan’s July core private machinery orders were also weaker than expected, falling 9.3% m/m.
Europe
Today’s European data and news are a mixed bag, and European currencies are showing mixed trends in response. The Bank of England held its policy rate at 0.50% and made no change to its asset purchase program. Meanwhile U.K. August house prices rose 0.8% m/m, broadly as expected. Together the events combined to lift the pound the most of any G10 currency against the buck today. Sweden’s August core CPI quickened slightly to 1.9% y/y, while Norway’s core CPI slowed to 2.3% y/y. The Norwegian krone is down sharply today, although analysts still appear to view a near-term Norwegian rate hike as more likely than not. French July industrial output edged up 0.1% m/m, while ECB policymaker Weber (a well known hawk) said the central bank interest rate is appropriate, and that it’s not yet time to withdraw emergency stimulus measures.
Americas
There is good and bad in today’s U.S. economic news. Initial jobless claims fell more than expected by 26,000 to 550,000, while continuing claims also fell by 159,000 to 6,088,000. The July trade deficit was an unfavorable surprise, widening to $32.0B. Exports rose 2.2% and imports by 4.7% m/m, with automotive exports and imports rising particularly sharply. The Bank of Canada held its policy rate at 0.25% and repeated its commitment to keep rates low until mid 2010. The Bank also said a strong currency posed downside risks to the economy. Meanwhile, Canada’s July balance printed at a deficit of C$1.4B, mainly on the back of a surge in imports. Brazil’s August CPI slowed a bit more than expected to 4.36% y/y, while the central bank’s monetary policy minutes suggested tha t policy is on hold.
Published on Thu, Sep 10 2009, 13:44 GMT
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The U.S dollar is a touch lower overall
Wed, Sep 9 2009, 14:05 GMT
by Wells Fargo Research Team
Market Summary
The U.S. dollar remains under some pressure, with technicals seemingly playing a large part in today’s price action. The fundamental and market backdrop is not as supportive today of a soft U.S. dollar trend. Asian equities are mixed and European and U.S. equities are only modestly higher. International news and data has been negative on balance, and the sharp fall in U.S. consumer credit would have in recent times at least been consistent with dollar strength rather than dollar weakness. Instead, we believe the FX market participants are taking their inspiration from the breach of important technical targets, including the new 2009 highs for the euro, Australian and New Zealand dollars in recent days. Regardless of the fundamentals, which we are not convinced support a weaker dollar trend against the majors, technicals suggest we will at least test the December 2008 high for the euro. Over the next 24 hours both New Zealand and Canada announce monetary policy decisions. Given some sensitivity of those central banks to FX moves, it will be interesting to see if currencies warrant a prominent mention in either of the central bank’s statements.
Regional Highlights
Asia/Pacific
Regional currencies are firmer on balance, despite a backdrop of mixed economic data and equity markets. Australia’s July retail sales unexpectedly fell 1% m/m, while July home loans fell by 2% m/m. The New Zealand dollar is also firmer as August credit card spending edged up 0.2% m/m. Tomorrow the Reserve Bank of New Zealand announces its monetary policy decision, and is expected to keep it Official Cash Rate at 2.50%. The accompanying statement will be watched closely – there is some talk among analysts that the central bank will not signal the possibility of further rate cuts, as it has at recent announcements. Across the region the Indonesian rupiah and Korean won are the strongest currencies today, while the Japanese yen is also edging higher against the buck.
Europe
After a brief pause to catch their breath, European currencies are moving higher again today. Those gains have little to do with today’s news or data. ECB President Trichet was cautious saying it’s “not time yet to say the crisis is over” and that it’s important for policymakers to consider how they will withdraw economic stimulus. The U.K July trade deficit was slightly wider than expected at 6.48B pounds, while in Sweden July industrial output fell 0.5% m/m, the eighteenth straight decline. The pound is also getting some support as Moody’s said a downgrade of the U.K’s credit rating was unlikely.
The euro has set a fresh 2009 high today, while the pound, Swiss franc and Scandinavian currencies are all higher as well.
Americas
The U.S dollar is a touch lower overall, following yesterday’s slump. U.S. July consumer credit fell by a record $21.6B, while later today the Federal Reserve releases its Beige Book report on economic conditions. In other comments, Chicago Fed President Evans said policymakers will need to act aggressively to contain inflation once the economy rebounds, and hike rates faster than in the 2004-06 period, though he did add that it is too soon to start tightening just yet. Chile’s central bank held its policy rate at 0.50% at yesterday’s meeting, and made no other changes to its policy programs. The Chilean peso is up, as is the Mexican peso as the government proposed spending cuts and tax increases aimed at limiting the 2010 budget deficit to 2.5% of GDP. The Canadian dollar is up: August housing starts rose 12.1% m/m, while the central bank announces its monetary p olicy decision tomorrow.
Published on Wed, Sep 9 2009, 14:05 GMT
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European currencies are leading the charge today
Tue, Sep 8 2009, 13:44 GMT
by Wells Fargo Research Team
Market Summary
The early signals of post-Labor day trading for the greenback are not favorable, with the dollar down sharply and almost across the board. Part of the gain in foreign currencies is due to improving risk appetites and advancing equity markets. But that appears to be only a small part of today’s price action, with the dollar-bloc currencies actually the laggards among the G10, and the yen doing well despite favorable market conditions. Instead, today’s decline appears to be very much a dollar centered move. And the drivers behind that move are the familiar structural concerns about the dollar, highlighted today by the United Nations’ call for a new reserve currency. We do not share to the same extent the structural concerns cited by others – that is, excessive monetary easing and excessive budget deficits – as downside risks for the dollar, nor do we believe there is compelling evidence the U.S will underperform other major economies during the recovery phase. Of course new dollar lows are technically important, and a rise in the euro towards its December high can’t be ruled out, even if we believe the dollar’s weakness is not fundamentally justified.
Regional Highlights
Asia/Pacific
Regional currencies are firmer as the dollar is under pressure across the board today. Strength in regional equity markets appears to be the key driver of FX markets, contributing to more than 0.5% gains in the Indonesian rupiah, Singapore dollar and Philippines peso. Down-under, the Australian and New Zealand dollars are firmer, though they are lagging behind most other G10 currencies. The muted performance of the antipodean currencies is perhaps surprising given the rise in Australian August business conditions to +4, and the rise in the forward looking business confidence measure to +18. Another slight surprise perhaps is the strength of the yen considering the overall favorable market conditions, a fall in the July current account surplus to Y1159B, and a fall in the August economy watchers survey to 41.7. The Chinese renminbi is steady, but the announcement by China that it will issue 6B renminbi of government bonds in Hong Kong is attracting some attention.
Europe
European currencies are leading the charge today, with the euro reaching new highs for the year against the greenback. The euro’s advance had little to do with today’s economic data. The German July current account surplus did narrow less than expected to E11B, but July industrial output unexpectedly fell by 0.9% m/m. The pound is the strongest among the G10 today, and that gain was at least partly reinforced by economic figures – U.K. July industrial output surprised to the upside with a 0.5% m/m gain. The Swiss franc is also doing quite well – the August July unemployment rate rose less than expected to 4.0%. Finally the Israeli shekel is one of the few currencies to fall against the greenback today, on speculation to central bank intervened in FX markets to stem the shekel’s advance.
Americas
The dollar has started post Labor-day trading on the back foot. Ahead of that holiday weekend, the greenback was unable to sustain gains seem in the immediate wake of the U.S. payrolls figures. And following the break that has given way to dollar slippage as the United Nations called for a multi-national reserve currency, and China’s announcement it will issue government bonds in Hong Kong, a step along the path of increasing international usage of China’s currency. The Mexican peso is gaining on expectations President Calderon will announce significant spending cuts and a budget deficit of only a little over 1% of GDP for 2010. Chile’s August CPI fell 1% y/y while the central bank should hold interest rates at 0.50% later today. Canada’s July building permits fell 11.4% m/m, while U.S. July consumer credit is forecast to fall by $4B for the month.
Published on Tue, Sep 8 2009, 13:44 GMT
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It's all about employment data in the US and Canada this morning
Fri, Sep 4 2009, 14:01 GMT
by Wells Fargo Research Team
Market Summary
It was always going to be about the US August payrolls report today and FX markets were predictably trading in tight ranges going into the numbers. One exception was the Canadian dollar, which took encouragement from an upside surprise in the Canadian August jobs report. The US payrolls data was slightly disappointing, with the highlight being the rise to 9.7% in the unemployment rate, another high for the current cycle and the highest since 1983. This suggests the job market continues to lag other signs of economic recovery, which is consistent with historical patters and should be of little surprise to the Fed. The FX market reaction to the numbers has been mixed, with the initial strength in the euro and weakness in the dollar quickly reversed, and the greenback’s advance is starting to threaten technical levels against the euro. While we continue to maintain a positive dollar outlook, we are doubtful that a sustained range breakout is likely to take place ahead of the long US weekend.
Regional Highlights
Asia/Pacific
It has been a relatively quiet trading session in Asia, with the prospects of a key US data release later in the day keeping the current trading ranges intact. Modest equity market gains in China and elsewhere were weighing on the yen and helping the emerging Asian currencies, where the South Korean won is among the gainers today. The Australian and in particular the New Zealand dollars are firmer as well, and close to flat on the balance of the week. Gold prices were steady after an impressive two day rally. There were only a handful of notable data releases in the region. Japan’s capital spending fell by 21.7% y/y in Q2, while the Philippines’ CPI was a little softer than expected showing a 0.1% y/y rise in August.
Europe
The euro was steady and near the middle of its trading range heading into the US data this morning. In a newspaper article, the ECB President Trichet said that authorities have mapped the exit from the ‘non-standard’ monetary policy measures, but that the timing for such an exit has not come yet - a stance that appears similar to that currently maintained by the US Fed. After the US employment data, the euro is losing ground however. The pound is underperforming the euro somewhat this morning in the absence of any major UK data, while the Swiss franc has given up its earlier gains. The Swiss August CPI was slightly softer than expected, rising by 0.1% m/m and falling by 0.8% y/y. While the Scandinavian currencies are steady today, the Swedish krona is among the biggest decliners on the week.
Americas
It’s all about employment data in the US and Canada this morning. The US August non-farm payrolls fell by 216,000 a slightly smaller fall than expected, but this was more than offset by downward revisions to previous months and the jump in the unemployment rate to 9.7%, the highest since 1983. Aggregate hours worked fell by 0.3% m/m while the rise in earnings was stronger than expected. Overall, it’s a slightly disappointing report, and the dollar’s positive reaction has been mainly a reflection of lower risk appetites. Meanwhile, Canadian employment data surprised on the upside, showing a net gain of 27,100 jobs, while the unemployment rate fell to 8.7%. The breakdown of the report is less encouraging however, with gains entirely due to a rise in parttime positions, while full-time jobs fell by 3,500. The Canadian dollar is currently reversing some of its initial s trength.
Published on Fri, Sep 4 2009, 14:01 GMT
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The euro was firmer going into the ECB rate decision this morning
Thu, Sep 3 2009, 14:24 GMT
by Wells Fargo Research Team
Market Summary
The US dollar is retreating across the board as the ‘risk aversion’ mode gives way to a more positive market sentiment. The link between economic data and FX remains tentative at best, while equities remain the best guide to intraday currency moves. Part of the euro’s firmer tone this morning was also attributable to expectations of positive growth and inflation revisions by the ECB and hopes for some hawkish hints from the ECB President Trichet. In the event, Trichet stuck with the current balanced message, and his remark that inflation is to remain “subdued” probably disappointed some hawks. Sweden’s Riksbank also opted for caution today, repeating that it intends to keep rates at their current near-zero level for another year. Overall, little has changed for FX markets in recent sessions as threats of a breakout from current ranges remain just that. We would remain alert to economic data developments however, starting with today’s August US non-manufacturing ISM, and of course tomorrow’s key non-farm payrolls report.
Regional Highlights
Asia/Pacific
A notable reversal in global equity market sentiment is a tide that is lifting a lot of boats this morning, including the Australian and NZ dollars and a number of emerging Asian currencies. Meanwhile, the dollar and the yen are giving up some their recent gains. The link between data releases and currencies remains unreliable as the Aussie is rallying today despite the wider than expected A$1.56 trade deficit in July. In other regional events, South Korea’s Q2 GDP was revised higher to show a 2.6% q/q rise, while Indonesia’s central bank held rates steady at 6.50% in line with expectations, citing the nascent economic recovery and inflation outlook as the reason behind the end to its policy easing cycle.
Europe
The euro was firmer going into the ECB rate decision this morning, boosted by a combination of expectations for a more positive message from the central bank and a bounce in equity markets. There was little surprise in that rates were left steady at 1.00%, while the ECB also revised higher its growth and inflation projections for 2009 and 2010 as was widely anticipated. At the subsequent press-conference the ECB President Trichet said “risks to inflation outlook remain broadly balanced”, noting signs of economic stabilization but saying that price developments will remain “subdued”. The Eurozone data was mixed this morning. The August services PMI was revised higher 49.9, pushing the composite index to 50.4 but retail sales slumped by 0.2% m/m in July. Meanwhile, UK’s August services PMI rose further into expansion territory at 54.1 and the pound is firmer alongside the euro this morning. Elsewhere, the notable bounce in the Norwegian krone contrasts with a less than impressive performance by the Swedish krona. Sweden’s Risksbank left rates steady at 0.25% at its policy meeting and reiterated its intention to remain on hold until the fall of 2010.
Americas
US weekly jobless claims were mildly disappointing this morning. Initial claims fell slightly to 570,000, while continued claims rose. However the jobs data today is likely to be overshadowed by the August non-manufacturing ISM index, especially after the manufacturing ISM rose into ‘expansion’ territory earlier this week. The greenback is weaker but off the earlier lows this morning, while the Canadian dollar is slightly firmer and the Brazilian real has bounced after the central bank left rates unchanged at 8.75% yesterday.
Published on Thu, Sep 3 2009, 14:24 GMT
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The yen is extending its recent gains this morning
Wed, Sep 2 2009, 13:59 GMT
by Wells Fargo Research Team
Market Summary
After several months when it appeared that nothing could ever go wrong for equity markets, the mood is distinctly different so far in September. Equities are failing to get impressed by stronger than expected economic data worldwide, including today’s Australian GDP report. The yen is the main beneficiary of the return of risk aversion, while the US dollar is not far behind. Commodity currencies, and in particular the New Zealand and Canadian dollars are underperforming as are the Mexican peso and the Brazilian real. While there is nothing new in that US dollar continues to track equity markets closely for the time being, yesterday’s US manufacturing ISM numbers are in our view a potential sign of relative US economic outperformance and a dollar recovery ahead. While both the Eurozone and the UK August manufacturing PMIs fell short of the 50 mark, the US manufacturing ISM is now in ‘expansion’ territory and the strong rise in the new orders component suggests further gains in the headline index in the coming months.
Regional Highlights
Asia/Pacific
The yen is extending its recent gains this morning, as global equity markets remain in negative territory. The yen is advancing against the dollar and even more notably so against the euro, where it touched a seven-week high. In recent sessions risk aversion is running high despite a generally positive global data mix. Today’s Australian GDP release is a case in point – GDP rose by a stronger than expected 0.6% q/q, likely bringing forward expectations for a rate hike from the Reserve Bank of Australia. The mildly positive reaction from the Australian dollar was unimpressive however and Australia’s equities fell. Across the Tasman, the New Zealand dollar is also tracking equity markets lower. There was little data of note elsewhere, while emerging Asian currencies are generally softer, in particular the rupiah and the won.
Europe
The euro is so far holding steady against the greenback after yesterday’s selloff in what is a light day for economic data in the region. The Eurozone Q2 GDP was unrevised as expected, showing a small 0.1% q/q (non-annualized) decline. The July Eurozone PPI release was a touch softer than expected, falling 0.8% m/m and 8.5% y/y, suggesting pipeline disinflationary pressures are still running high in the region. The British pound is moving alongside the euro after the August construction PMI rose to 47.7. The biggest data surprise came out of Norway where the manufacturing PMI unexpectedly slumped back into contraction territory, falling to 42.3 in August, its lowest level since May. The Norwegian krone is underperforming other regional currencies.
Americas
Today’s US economic focus is on the ADP private sector employment report which foreshadows the government’s official non-farm payrolls release on Friday. Private sector employment fell by 298,000, potentially hinting at a weaker payrolls number on Friday. In other data, US Q2 non-farm productivity rose by 6.6% q/q (annualized) while unit labor costs fell 5.9% q/q. Later today, the July US factory goods orders are expected to rise 2.2% m/m. The highlight of the US data week so far is yesterday’s August manufacturing ISM report which rose into expansion territory and posted an impressive rise in the new orders component, suggesting further gains in the headline index ahead. In other regional events, Brazil’s central bank is expected to keep rates steady at 8.75% later today. The real is weaker this morning as is the Mexican peso.
Published on Wed, Sep 2 2009, 13:59 GMT
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The euro is struggling to take advantage of firmer economic data
Tue, Sep 1 2009, 13:45 GMT
by Wells Fargo Research Team
Market Summary
FX markets are range bound with both dollar bulls and bears struggling to gather enough momentum for a breakout. The greenback is slightly stronger overall as equity markets appear on the defensive again. Chinese equities failed to bounce back today despite another rise in the manufacturing PMI index in August, and the market remains focused on concerns over the curbs in China’s bank lending. European equity markets and the euro also struggled to take advantage of firmer than expected economic data, while the dip back into ‘contraction’ territory in the UK manufacturing PMI has reversed the earlier rally in the British pound. The release of the US August manufacturing ISM today will provide for a convenient comparative point for the manufacturing outlook and the overall speed of recovery in the US, the Eurozone and the UK. In the short-term, the dollar may still take cues from the equity market reaction to the ISM report, but looking ahead we believe relative growth trends will gradually take over the main driver of currencies.
Regional Highlights
Asia/Pacific
The Reserve Bank of Australia left rates unchanged at 3.00% and said their current policy stance is “appropriate”, perhaps somewhat of a disappointment to those looking for a more hawkish signal from the central bank. The Australian dollar is softer this morning, also a reflection of a negative equity market sentiment. After a sharp sell-off yesterday, Chinese equities failed to rebound today despite another rise in the China’s Manufacturing PMI to 54 in August. Other data releases were mixed, including a stronger than expected 7.7% m/m rise in Australian building approvals but a steeper 28.4% y/y drop in India’s exports for the same month. The yen is holding on to its postelection gains against the greenback and strengthening against most other currencies, while emerging Asian currencies are mixed with the won stronger and the rupee weaker this morning.
Europe
Not for the first time in recent weeks, the euro is struggling to take advantage of firmer economic data. The Eurozone August Manufacturing PMI was revised higher to 48.2, although a reading below 50 still implies a contraction. The Eurozone unemployment rate rose to 9.5% in July as expected, but Germany’s employment report for August showed the jobless rate actually falling to 8.3%. Adding to the positive mix was a 0.7% m/m bounce in Germany’s retail sales in July. Economic news was less encouraging in the UK. The August manufacturing PMI unexpectedly dipped back into ‘contraction’ territory at 49.7, weighing on the pound, which erased its initial gains. Elsewhere, the Swiss franc is notably outperforming other European currencies this morning, a combination of higher risk aversion and a less weak than expected 0.3% q/q (non-annualized) fall in Swiss Q2 GDP.
Americas
The key event on the US economic calendar today is the August manufacturing ISM survey, expected to rise to 50.5, which would be the first month of ‘expansion’ after 19 straight ‘contraction’ months. Other releases include July pending home sales and construction spending as well as the August industry auto sales figures, expected to receive a sizeable boost from the government’s ‘cash for clunkers’ scheme. The Canadian dollar is well off yesterday’s lows but vulnerable to any further oil price weakness. Elsewhere, the Mexican peso is weaker this morning while the Brazilian real is little changed. Brazil’s August trade surplus is expected to narrow slightly to $2.8B.
Published on Tue, Sep 1 2009, 13:45 GMT
7
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Currency markets are starting the week cautiously
Mon, Aug 31 2009, 13:46 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are starting the week cautiously, favoring the US dollar and the Japanese yen. Elections in Japan produced the opposition DPJ as a clear winner, but the yen’s reaction has been somewhat underwhelming. Given widespread declines in global equity markets, including a 6.7% drop in Chinese stocks, we would lean towards attributing most of yen’s strength to unsettled market conditions this morning. While the Australian and New Zealand dollars are predictably struggling today, weakness in the Canadian dollar is most notable. The Canadian currency started slipping well before the release of the weaker than expected Q2 GDP numbers and we suspect equity trends and sketchy liquidity are exaggerating the move. We would thus continue to treat the back-and-forth FX price action of recent days with a grain of salt, waiting for a clearer breakout from current trading ranges, which we still believe will more likely happen in the direction of dollar strength. The US non-farm payrolls on Friday may just provide the excuse for such a break.
Regional Highlights
Asia/Pacific
Japan’s opposition DPJ won a decisive election victory this weekend, unseating the ruling LDP for only the second time in the last 50 years. Political change is likely to trigger economic change as well, including plans to boost consumer spending, which may lead to some fiscal slippage going forward. If anything, the currency market reaction has been underwhelming, and the yen’s strength this morning has likely as much to do with somewhat unsettled markets (China’s equities were down 6.7%) as with the election results. Weaker Australian and New Zealand dollars are also consistent with markets in a ‘higher risk aversion’ mode, while in the emerging Asia bloc the rupiah, the won and the rupee are all weaker. FX and equity markets are vulnerable despite generally stronger data – somewhat of a recent trend. Japan’s industrial production rose by 1.9% m/m in July, a fifth straight increase, New Zealand’s business confidence rose to 34.2 in August, while India’s Q2 GDP growth accelerated slightly to 6.1% y/y.
Europe
With a bank holiday in the UK, European markets are relatively quiet and the pound, the euro and the Swedish krona are slightly weaker against the greenback. The main regional data release is the first estimate of the Eurozone August CPI, which showed a decline of 0.2% y/y, a less steep fall than in July. In the UK, the Hometrack house price index released over the weekend showed the first month-to-month increase in two years. Elsewhere in the region, Norway’s retail sales rebounded by 2.4% m/m in July, helping the krone hold its ground against the dollar and outperform other regional currencies.
Americas
Canada’s GDP fell by 3.4% q/q (annualized) in Q2, weaker than market expectations, although the number is very close to the Bank of Canada projection for the quarter. The breakdown shows most of the weakness coming from net exports, while final domestic demand actually grew by some 0.4% q/q (annualized). The Canadian dollar weakened notably going into the numbers, with weaker equities, oil prices and limited summer liquidity probably all contributing to the direction and the size of the move. The US data calendar features the August Chicago PMI today, expected to show a rise to 48. Elsewhere, the Mexican peso and the Brazilian real are weaker this morning, the latter despite a 2.2% rise in industrial production in July.
Published on Mon, Aug 31 2009, 13:46 GMT
7
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The dollar is down against most currencies
Fri, Aug 28 2009, 13:59 GMT
by Wells Fargo Research Team
Market Summary
The dollar is down against most currencies, slipping further after yesterday’s sharp decline. Strength in global equity markets explains much of today’s FX moves, helping G10 and Asian currencies, but perhaps somewhat surprisingly the Mexican and Brazilian currencies are actually weaker. Strength in equity markets also explains part of the yen’s decline, although there is more to it than that. Soft Japanese data and potential pre-election jitters are probably weighing on the yen as well. Dollar sentiment still appears to be somewhat fragile, but even with yesterday’s sharp moves the greenback has remained within the trading range of the past couple of months. While the chances of a breakout look to be increasing, market participants who have been waiting for a trend to re-emerge have already been disappointed many times over the summer. A move out of existing ranges is possible ahead of next week’s payroll, but we still think it is more probable after the payrolls release which could add some fundamentally-based support to FX moves.
Regional Highlights
Asia/Pacific
The yen is down against the dollar, reflecting a combination of soft data, stronger global equity markets, and perhaps some pre-election jitters. July employment fell by just 20,000, though that comes after large declines in prior months, while the jobless rate rose to a record high 5.7%. The July core CPI also fell by a record 2.2% y/y, while the 2% y/y fall in July household spending was also more than expected. In this weekend’s general elections the opposition DPJ party is widely expected to defeat the ruling LDP party by a handy margin, ending the ruling coalition’s nearly continuous 54-year hold on power. The fact that a DPJ government is an unknown, and a lack of conviction that the proposed policies will lead to economic recovery, are possible factors behind the yen’s slippage. There is virtually no other news from the region. Regional currencies are higher on stronger equity markets, the Australian dollar is up on expectations the central bank will hike rates sooner rather than later, and the NZ dollar is down slightly.
Europe
Today’s European data schedule has been moderately busy and the outcomes generally favorable. Eurozone August economic sentiment rose more than expected to 80.6, the highest since last October, while Switzerland’s August KOF leading indicator rose more than expected to -0.04, also the best reading since last October. Sweden’s July CPI jumped 1.9% m/m, while U.K. Q2 GDP was revised to show a slightly smaller fall of 0.7% q/q. In Poland Q2 GDP was stronger than expected, accelerating to 1.1% y/y. Among the European currencies, the Scandinavian currencies are doing particularly well, while the euro, pound and Swiss franc are enjoying more moderate gains.
Americas
U.S. July personal incomes were flat for the month, while personal spending rose 0.2% m/m. Inflation pressures continue to ease as well, with core PCE prices slowing to 1.4% y/y. Revised Michigan consumer sentiment data is due later today, with a small upward revision to 64.0 expected. In Canada, the Q2 current account deficit widened to C$11.2B, exactly as forecast, while July industrial product prices fell 0.5% m/m, and raw materials prices even further. Mexican government budget data for July are released today, while in Colombia the central bank is expected to hold its benchmark interest rate at 4.50% at today’s monetary policy announcement. The Canadian dollar is firmer, while the Mexican peso and Bra zilian real are weaker.
Published on Fri, Aug 28 2009, 13:59 GMT
8
0
The Australian dollar is the strongest regional currency
Thu, Aug 27 2009, 13:45 GMT
by Wells Fargo Research Team
Market Summary
The dollar is broadly steady, and for the most part today currency market activity is lacking energy and movement. The most decisive trading occurred during Asian hours, with concerns about Chinese plans to curb investment in some industries leading regional equity and currency weakness, and strength in the yen on some ‘safe haven’ support. The one exception to this overall theme is strength in the Australian dollar, on the back of firm data. It has been much quieter during the European and early U.S. hours, with little in the way of economic surprises, and even equity markets not showing particularly large moves. As a result the euro had been unable to sustain intraday gains, while the pound has continued its recent trend of underperformance. If anything, the chance of a breakout from existing trading ranges looks even less threatening than it has over the past several sessions. FX markets could remain in a holding pattern for several days, with U.S. payrolls late next week the next identifiable event that could trigger an FX move in either direction.
Regional Highlights
Asia/Pacific
The Australian dollar is the strongest regional currency, boosted by unexpected strength in capital spending. Private capital spending rose 3.3% q/q, while capital spending plans for the year to June 2010 rose 15.4% from the most recent estimate three months ago. Most Asian currencies are weaker, reacting to China’s announcement it is studying ways to curb overinvestment in some industries, including steel and cement. The rupiah, won, and Philippines peso are the weakest regional currencies. That’s despite a rise in September business confidence in Korea, and a stronger than expected gain in the Philippines’ Q2 GDP of 2.4% q/q and 1.5% y/y. The yen is up, gaining some support from regional growth concerns.
Europe
European currencies are generally steady and lagging behind other G10 currencies, with today’s mixed figures providing little impetus for significant FX moves. Eurozone July M3 money growth slowed further to 3% y/y, while in the U.K. the good news of a 1.6% m/m gain in August house prices was offset by the bad news of a 10.4% q/q fall in Q2 business investment. A Q2 survey of British retailers suggested that sales were subdued but steady. The euro is steady, reversing earlier intraday gains, while the British pound is the weakest G10 currency, extending its underperforming trend.
Americas
Today’s U.S. figures are having limited impact on FX markets. Q2 GDP was unrevised showing a 1% q/q annualized decline, although the details showed upwards revision to consumer spending and exports, and a larger inventory decline than initially estimated. Weekly jobless claims were mixed: initial jobless claims were higher than expected at 570,000, while continuing claims fell more than expected to 6,133,000. Richmond Fed President made some comments that could be interpreted as mildly hawkish. He said that ‘we can look forward to better times’ and that inflation probably won’t fall significantly, while adding that the Fed might not need to purchase the full $1.25 trillion of agency securities announced under purchase program. Regional currencies are somewhat mixed: the Canadian dollar and Brazilian real are firmer, but the Mexican peso is weaker.
Published on Thu, Aug 27 2009, 13:45 GMT
5
0
Most regional currencies are weaker against the greenback
Wed, Aug 26 2009, 14:03 GMT
by Wells Fargo Research Team
Market Summary
The dollar is stronger, price action that is consistent with continued consolidation and trading within existing ranges. The main influence on FX markets today is, once again, equity market performance. Weakness in European and U.S. bourses is once again leading to strength in the dollar, while the yen is holding steady. What is also interesting about today’s price action is the weakness in equities despite favorable economic signals – notably a rise in German business confidence and some firm Asian figures. Of course, financial market analysts – ourselves included – have been tripped up many times already during the early recovery phase, and so prudence cautions against reading to much into today’s price action. The safest thing to say is that based on today’s intraday moves, existing trading ranges are likely to hold for the time being. Our bias remains that when the breakout comes, it is more likely to be in the direction of a stronger rather than weaker dollar.
Regional Highlights
Asia/Pacific
Most regional currencies are weaker against the greenback. Australian central bank policymaker Corbett said interest rates will eventually rise, but that timing would hinge on the strength of the consumer. Thailand’s central bank held its benchmark interest rate at 1.25%, saying policy was ‘appropriate’ and that downside risks to the economy were receding. Malaysia’s second quarter GDP fell by 3.9% y/y, less than expected, while in Singapore July industrial production surged 23% m/m on the back of pharmaceutical output. Japan’s July trade surplus fell a bit more than expected to Y195B, while August small business confidence rose for a seventh month, to 41.8. Despite this generally favorable news virtually all regional currencies are weaker, with the rupiah, rupee and Philippines peso today’s largest decliners.
Europe
European currencies are lower even in the wake of encouraging economic news. Germany’s August IFO business confidence index rose more than expected to 90.5, with both the assessment of current conditions and especially of future expectations higher. The euro is weaker however, suggesting that a breakout from the existing trading range is unlikely for the time being. The pound is the weakest G10 currency today, extending its recent underperforming trend. The Swedish krona is also down in the face of mixed economic figures: August consumer confidence rose, but August manufacturing confidence unexpectedly fell. Poland’s central bank held its benchmark interest rate at 3.50%, as expected, while South Africa’s CPI inflation slowed to 6.7% y/y in July, the slowest pace in two years.
Americas
U.S. July durable good orders jumped 4.9% m/m, although excluding defense and aircrafts, orders actually fell 0.3% m/m. Durables shipments also rose 2% m/m. The report is not as strong as the headline figure would suggest, but is nonetheless consistent with improving investment spending. U.S. July new home sales, due later today, are forecast to rise by 1.6% m/m to a 390,000 annual selling pace. Mexico’s Q2 current account surplus was lower than expected at $454M, but still consistent with a slight narrowing in the current account deficit for the year to June. Mexico’s July unemployment rate released later today is expected to rise to 5.7%. In currency markets, the Canadian dollar, Mexican and Chilean pesos, and Brazilian real are all weaker against the greenback.
Published on Wed, Aug 26 2009, 14:03 GMT
9
0
The dollar is under pressure again today
Tue, Aug 25 2009, 13:57 GMT
by Wells Fargo Research Team
Market Summary
The dollar is under pressure again today, even if it remains within recent ranges against major currencies such as the euro and the yen. European equities are higher as are U.S. equity futures, perhaps helped in part by Fed Chairman Bernanke’s nomination to a secondterm. U.S economic news was positive, including a monthly gain in house prices, and the ongoing inverse relationship between equities and the greenback is contributing to the greenback’s slide. For history buffs, we also note that Japanese LIBOR rates have moved above U.S. LIBOR rates for the first time in sixteen years. While a re-test of the weaker end of the dollar’s range is possible, we continue to expect that good U.S. economic news will eventually be good for the greenback. On a trend basis, we see the dollar stronger against the euro and the yen in coming quarters. The outlook for the Australian dollar and some emerging currencies (e.g. Brazil, Israel) is more encouraging, given the likelihood o f stronger growth and/or interest rate hikes in those countries.
Regional Highlights
Asia/Pacific
Many Asian currencies are weaker today, with an element of caution returning to financial markets. Chinese equities fell more than 2% after Premier Wen said the economy faces ‘uncertainties’. Chinese equities have displayed some volatility and vulnerability in recent sessions. The Korean won is down as a central bank policymaker said that interest rates should be kept low. The Malaysian ringgit is also weaker. The central bank held its overnight rate at 2.00%, as expected, saying that the economy was improving but that inflation pressures were benign. The Australian and New Zealand dollars are stronger however, as is the Japanese yen, with the Aussie and kiwi gaining ground in the London and New York trading sessions.
Europe
European currencies are mixed against the dollar, in what has generally been uninspired trading today. The euro and Swiss franc are stronger, while the Norwegian krone and pound are a touch weaker. Today’s economic news was somewhat incidental to currency moves. Germany’s Q2 GDP growth was confirmed at 0.3% q/q, with gains in consumer and investment spending, and a positive contribution from net exports. Switzerland’s Q2 employment fell 0.4% y/y, a larger than expected fall, while the monthly consumption indicator for July also softened. The decline in the pound extends the recent underperformance by the British currency. Yesterday, Israel’s central bank surprised the markets with a 25bp hike in its benchmark interest rate to 0.75%, citing a need to support recovery but also guard against inflation pressures.
Americas
Fed Chairman Ben Bernanke was nominated for a second four-year term starting January 31 next year. While the nomination is not much of a surprise, it does remove any uncertainty surrounding Fed leadership, and has been well received by markets. The decline in Case Shiller house prices slowed more than expected, to 15.4% y/y, though perhaps of more interest was the second straight monthly increase in prices. Among today’s other events, U.S. August consumer confidence is expected to increase to 47.9, while Brazil is expected to report a July current account deficit of $1275m but also show net foreign direct investment of $1700m. The greenback is experiencing widespread losses against regional currencies.
Published on Tue, Aug 25 2009, 13:57 GMT
5
0
The Japanese yen is on the defensive this morning
Mon, Aug 24 2009, 15:29 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are starting the week on a quiet note, but the overall theme of market optimism is largely intact. Official comments from the central bankers’ symposium in Wyoming may have not added any new information, but they did to some extent validate the market’s view that the global economy is already on the recovery path. The greenback is slightly firmer against the yen, holding steady against the European currencies and losing ground against the dollar-bloc currencies (Australia, New Zealand, Canada). Conventional wisdom suggests that major currencies should trade within their recent ranges until FX liquidity improves after the Labor Day holidays. However, there is plenty of data in the US and elsewhere to change that this week, with consumer-related numbers likely to be watched closely. In the US, consumer confidence, personal income and spending along with durable good orders will be key, while Germany’s IFO business climate survey is the highlight of the week.
Regional Highlights
Asia/Pacific
The Japanese yen is on the defensive this morning, as official commentary from the central bankers’ symposium in Jackson Hole, Wyoming suggested policymakers are becoming cautiously optimistic on the global economic recovery prospects. A slightly stronger Australian and New Zealand dollars are also consistent with the higher risk appetite environment. That said, FX moves are modest this morning for the majors and the emerging market currencies alike. Data releases in the region hit close to the expectations mark today, with the exception of a surprise 6.9% m/m drop in Australia’s July motor vehicle sales. Singapore’s CPI fell by 0.5% y/y in July, Thailand’s GDP rebounded by 2.3% q/q in Q2, and the decline in Taiwan’s industrial production slowed to 8.1% y/y in July. Europe
The euro is little changed against the dollar but gaining against the yen this morning. The string of good news on the data front continued today with the Eurozone industrial new orders up by a higher than expected 3.1% m/m in June. While recent data does likely warrant an upgrade to the region’s recovery prospects, the ECB President Trichet made notably cautious remarks over the weekend, saying that the economy is “starting to get out of a period of freefall” but noting a bumpy road ahead. The key Eurozone release this week will be Germany’s August IFO survey on Wednesday. Other European currencies, including the British pound and the Swiss franc are steady against the greenback. Elsewhere, Hungary’ central bank cut rates by 50bp to 8.00% this morning. Israel’s central bank is also meeting later today and is expected to keep rates steady at 0.50%.
Americas
There are no major data releases scheduled in the US today but markets have taken note of last Friday’s comments from the Fed Chairman Bernanke. He said that “prospects for a return to growth appear good”, although noting that “critical challenges remain”. Thus, while the Fed is clearly more optimistic on growth, there are still few signs it is ready to signal a shift in policy. The greenback is slipping versus the Canadian dollar, which was boosted by a stronger than expected 1.0% m/m nominal and 0.4% m/m volume rise in June retail sales. The Mexican peso also touched a multi-month high this morning, after the central bank left rates unchanged at 4.50% on Friday and said it would “extend the pause”.
Published on Mon, Aug 24 2009, 15:29 GMT
4
0
It was a remarkably quiet session for Asian news
Fri, Aug 21 2009, 13:51 GMT
by Wells Fargo Research Team
Market Summary
The dollar is down almost across the board, ending the week on a soft note. While Asian equity markets were mixed in response to news that China could tighten capital requirements on the country’s banks, most Asian currencies managed to advance in any case. The euro was helped by survey evidence suggesting the Eurozone is close to returning to growth, while the persisting inverse correlation between the dollar and equity markets is also explaining today’s decline. The dollar remains unwanted and unloved by many, with a well-known academic and a large money-management firm the latest to weigh in on the issue today. While the greenback continues to make large back-and-forward moves, they are typically within existing trading ranges. We continue to believe to some of the reasons that are cited for structural dollar weakness are overstated – if the dollar was to weaken further from this point, we expect it would for cyclical rather than structural reasons. We would watch the data more closely than the deficits for clues on the dollar’s direction.
Regional Highlights
Asia/Pacific
It was a remarkably quiet session for Asian news, with the main focus being media reports that China will tighten capital requirements for the country’s banks, a move that may see banks need to either rein in lending, or sell shares to raise capital. All things considered, regional bourses are reacting quite well to the news. Equity markets are certainly mixed, with Japanese and Hong Kong both lower, but China and South Korea, among others, managed to advance despite the news. Asian currencies, including the rupiah, ringgit and rupee, have all managed to advance, with only the Korean won lower. The New Zealand dollar is up despite a 2% y/y fall in July credit card spending, while the Australian dollar is up, but by less than most other G10 currencies.
Europe
Today’s most significant economic news comes from Europe, and the news is good. After Eurozone GDP fell just 0.1% q/q in Q2, August PMI surveys suggest the region is in the cusp of returning to growth in Q3. The August manufacturing PMI rose more than expected to 47.9, while the service sector PMI also rose much more then expected to 49.5. Strength in the German service sector in particular drove the increase. The euro is making steady gains against the dollar, albeit within ranges, while the Swiss franc is gaining as well. The franc’s gains comes despite figures that suggest the Swiss National Bank’s efforts to flood the market with liquidity to minimize deflationary risks are having some success. Swiss M3 money growth quickened to 7.7% y/y in July, while the narrower M1 money measure continues to surge, rising 49% y/y. The British pound is up, but is the weakest G10 currency other than the dollar today, continuing the underperformance seen in recent days.
Americas
There are several events to watch for today as the week comes to a close. This morning Fed Chairman Bernanke is scheduled to speak at the central bankers’ conference in Jackson Hole, with his topic being “Reflections on a Year of Crisis”. In economic figures, U.S. July existing home sales are expected to advance 2.1% m/m to a 5 million annualized selling pace. In Mexico the central bank is expected to hold its overnight rate at 4.50% after signaling a pause at its last monetary announcement, while the decline in Mexico’s retail sales is forecast to slow to 7.2% y/y in June. Yesterday, the decline in Mexico’s Q2 GDP quickened to 10.3% y/y, though the 1.1% q/q drop was less than in previous quarters.
Published on Fri, Aug 21 2009, 13:51 GMT
6
0
Most regional currencies are stronger against the dollar
Thu, Aug 20 2009, 14:08 GMT
by Wells Fargo Research Team
Market Summary
The dollar is slightly firmer today, stabilizing after yesterday’s slide. The greenback actually remained on the defensive during Asian trading session, as Chinese equities rebounded and most regional currencies gained. The dollar is doing better since, though it is not quite across the board gains for the greenback as the Norwegian krone rose on decent GDP figures. The pound is lower on fiscal concerns however, and the slight rise in U.S. jobless claims leading to a fall in U.S. equity futures is lending some support to the greenback as the inverse dollar/equities relationship persists. While currency markets have displayed large day-to-day in recent weeks, no clear trends have yet emerged, and the dollar remains in familiar ranges against the euro for example. Currency markets are likely to remain a reactive follower rather than a proactive driver of financial markets. While there is not perhaps an immediate trigger, we continue to see equities and foreign currencies as susceptible to corrective weakness, and our bias is for dollar gains in coming months.
Regional Highlights
Asia/Pacific
Most regional currencies are stronger against the dollar. The Korean won is leading the way higher, helped by regional equity strength in general and Chinese equity strength in particular. The Philippines peso is also one of today’s gainers. The central bank held its benchmark interest rate at 4%, as expected, ending its monetary easing cycle. In the accompanying statement the central bank said that monetary policy settings were appropriate, though the comments also pointed to a rebound in the economy and some sensitivity to inflation risks. In Taiwan, Q2 GDP rose 1.3% q/q, though coming after two large quarterly declines GDP was still down 7.5% y/y. The decline in India’s wholesale price inflation slowed slightly, to 1.53% y/y. The Australian and New Zealand dollars are up slightly against the greenback, as is the yen.
Europe
Most European currencies are mixed against the greenback. The Norwegian krone is doing better than the other major regional currencies: while country’s overall GDP fell 1.3% q/q in Q2, mainland GDP – which excludes oil, gas, and shipping activities – actually rose 0.3% q/q. In Switzerland, the July trade surplus rose to 2.35B Swiss francs. The British pound is lower in response to some mixed economic figures. Although U.K. July retail sales rose 0.4% m/m and 3.3% y/y, FX markets paid more attention to the July month budget deficit of 8B pounds, the largest July month deficit since records began in 1993.
Americas
U.S weekly jobless claims were a slight disappointment, with initial claims rising by 15,000 to 576,000, and continuing claims higher than expected at 6,241,000. Also on the schedule today, U.S. July leading indicators are expected to rise by 0.7% m/m, while the August Philadelphia Fed index is expected to improve to a net reading of -2. There is some significant news scheduled from Mexico today: the decline in GDP is forecast to accelerate to 10.6% y/y in Q2, although the measure of global economic activity is expected to report a smaller fall for the June month, of 9.4% y/y. Brazil’s jobless rate for July has already been released, and unexpectedly fell to 8.0%. The Canadian dollar and Brazilian real are lower against the greenback, while the Mexican and Colombian pesos are firm er versus the buck.
Published on Thu, Aug 20 2009, 14:08 GMT
4
0
Canadian and the New Zealand dollars
Wed, Aug 19 2009, 14:05 GMT
by Wells Fargo Research Team
Market Summary
The fall in China’s equities is dominating the headlines this morning and spurring risk-aversion demand for the Japanese yen and, to a lesser extent, the US dollar. China’s stocks fell 4.3% today and the decline from the early-August peak has nearly reached 20%, toying with a shift to a technical bear market. As China remains the main pillar for hopes of a robust global recovery, this is leading to declines in equity and commodity prices globally. The yen is notably outperforming the dollar in the safe-haven currency race, perhaps owing to lingering doubts about the US economic prospects and some dollar-bearish comments from large institutional investors. Also of note were minutes from the Bank of England’s last policy meeting that showed a number of policymakers including the Governor preferring to expand quantitative easing by a larger amount than was eventually announced. We are still seeing caution as the dominant theme this week and prefer to remain sellers of growth sensitive cur rencies such as the Australian, Canadian and the New Zealand dollars.
Regional Highlights
Asia/Pacific
Rising risk aversion is triggering a notable rally in the Japanese yen this morning. In the absence of major data releases, a 4.3% sell-off in Chinese equities overnight captured the attention of the currency market, leading to safe haven buying of the yen and the US dollar. The drop in the Australian and New Zealand dollars today is also consistent with weaker global equities, while emerging Asian currencies are weaker but only slightly so against the greenback. The regional data calendar was again thin today. Highlights include a smaller than expected 0.1% m/m rise in Japan’s June all-industry activity index as well as a 2.4% y/y fall in Malaysia’s consumer prices in July.
Europe
While the euro and the pound are somewhat weaker against the dollar today, their decline is more notable against the yen where both currencies touched a four-week low. Equity market weakness is the underlying story behind the move, although in the pound’s case further dovish signals from the central bank are having a currency impact as well. Minutes from the Bank of England’s last policy meeting showed that some of policymakers including the Governor wanted to extend the quantitative easing program by a larger amount, to 200B pounds rather than the 175B that was eventually announced. This suggests that while the UK economy may be showing signs of improvement, policymakers are still far off from exiting the current very accommodative policy settings. ECB’s Weber, typically a hawk, also struck a balanced tone in today’s comments saying that Germany’s economic recovery is “not sustainable yet”. Today’s Eurozone data also suggests that deflationary risks also remain present as the decline in Germany’s producer prices accelerated to 7.8% y/y in July.
Americas
The main regional data release this morning is Canada’s July consumer prices. The CPI fell by 0.9% y/y, the steepest decline in 56 years. Of more relevance to Canadian policymakers will be the slowdown in core CPI to 1.8% y/y. Although core inflation is still comfortably within the Bank of Canada’s 1- 3% target range, official concerns over the strength of the Canadian dollar are not likely to go away as long as inflation continues to fall. The Canadian dollar is slightly weaker this morning, as are the Brazilian and the Mexican currencies. There is no major data scheduled for release in the US outside of the weekly mortgage applications data , which was firmer than expected.
Published on Wed, Aug 19 2009, 14:05 GMT
5
0
Currency markets are mixed this morning
Tue, Aug 18 2009, 14:08 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are mixed this morning. Initially, the dollar and the yen gave up some of their yesterday’s gains in reaction to stronger equity markets and some firmer than expected economic data in the Eurozone and the UK. Germany’s ZEW economic sentiment rose more than expected in August, reaching its highest level in more than three years, while UK’s stubbornly resilient inflation also surprised the market and perhaps the Bank of England. However, the bounce in the euro and the pound after the data was unimpressive and the mood changed quickly after the US economic numbers. July housing starts and permits undershot expectations, albeit not by much, but this was enough to send the euro lower and the dollar and the yen higher. While market mood continues to change more frequently than the London weather, the overall sense of caution appears to be prevailing this week, providing a more positive trading tone for the dollar and the yen.
Regional Highlights
Asia/Pacific
The Japanese yen has given up some of yesterday’s gains in what was a relatively quiet trading session overnight, best characterized by a tentative improvement in risk appetites. Meanwhile, the Australian and New Zealand dollars are slightly firmer as are most emerging Asian currencies, in particular the South Korean won. Minutes from the Reserve Bank of Australia’s latest policy meeting were broadly balanced, highlighting both the risks of keeping rates too low and prompting inflation, and raising them too soon and killing off the recovery. Elsewhere, Japan’s June leading index was revised slightly higher to 79.9 in what has been a very quiet day for regional economic data.
Europe
European currencies enjoyed an initial bounce this morning. Germany’s ZEW economic sentiment survey rose to 56.1 in August, a much stronger than expected result and the highest since April 2006. Meanwhile UK inflation proved to be stubbornly resilient, and perhaps slightly to the surprise of the Bank of England which laid out a very dovish inflation outlook in its last inflation report. The July CPI was unchanged m/m and showed a steady pace of 1.8% y/y. However the bounce in the euro and the pound was relatively unimpressive given the scope of the upside surprises in the economic data today, and weaker than expected US economic numbers have sent both currencies lower. In other regional news, South Africa’s economy continued to contract in Q2 with GDP falling by 3.0% q/q (annualized), although this is still a smaller fall than in Q1. The data had a positive impact on the rand, which is firmer against the greenback today.
Americas
Today’s US data is mildly disappointing. July housing starts and permits both fell, by 1% m/m and 1.8% m/m respectively, although for both series this comes after two months of solid gains. The details of the report were also relatively encouraging, showing weakness only in the typically volatile multifamily sector. Meanwhile the US PPI release was softer than expected, falling 6.8% y/y at the headline and rising 2.6% y/y at the core rate. The dollar’s overall positive reaction to today’s data is consistent with the FX market continuing to take cues from movements in risk appetites and equity prices.
Other regional currencies are slightly firmer against the greenback this morning, including the Canadian dollar and the Brazilian real. In other regional news, Chile’s GDP contracted 4.5% y/y in Q2.
Published on Tue, Aug 18 2009, 14:08 GMT
2
0
Global equities are heading lower today
Mon, Aug 17 2009, 14:01 GMT
by Wells Fargo Research Team
Market Summary
The negative correlation between the US dollar and the equity markets is back as the key driver of the FX market today. The initial trigger for a drop in equities and the rally in the greenback was given by Friday’s decline in the US Michigan consumer sentiment, which poured cold water on hopes for a strong economic recovery. The sell-off in US equities has subsequently extended to declines in European and Asian stock markets, providing further support for the dollar. Meanwhile, the Japanese yen is also enjoying some safehaven demand, and waning global risk sentiment rather than positive domestic GDP news appears to be helping the yen today. For sure, the market mood remains fickle, and this morning’s better than expected US manufacturing data is helping to reverse some of the initial currency moves. Overall, we still believe that equity markets have rallied well ahead of the economy, implying that a sizeable downward correction could be at hand for both stocks and dollar-bloc currencies (Australia, New Zealand, Canada).
Regional Highlights
Asia/Pacific
The Japanese yen, along with the US dollar, is advancing this morning as Friday’s drop in the US equity markets has extended to Asia and Europe.
Weekend news of another bank failure in the US is also likely adding to the safe-haven demand for the dollar and the yen. Among the weakest currencies this morning are the Australian and New Zealand dollars while among emerging Asian currencies the South Korean won and the Indian rupee are losing ground. Market optimism appears to be waning despite mostly encouraging regional economic news today. The Japanese economy returned to growth in Q2, registering a GDP advance of 0.9% q/q (non-annualized), while Singapore also reported a 6.1% m/m bounce in non-oil domestic exports in July. On a more downbeat note, the decline in China’s FDI inflows accelerated to 20.4% y/y in July.
Europe
Global equities are heading lower today, putting European currencies under pressure. The euro is struggling against the greenback, but outperforming other regional currencies, including the British pound and the Norwegian krone. Likely adding to the pound’s downward momentum today was an unexpected 2.2% m/m drop in the UK Rightmove house price index in August. A larger than expected 4.6B euros June trade surplus in the Eurozone confirmed that trade was an important contributor to the better than expected Q2 GDP result, but the numbers had little impact on the euro today. The Swiss franc is also sliding despite some relatively encouraging Swiss data that showed real retail sales grew 0.9% y/y in June.
Americas
Friday’s decline in the US August Michigan consumer sentiment has set the bearish tone for the equity markets and a bullish tone for the dollar. Another US bank failure over the weekend has also added to a more pessimistic market mood. This week’s US data is starting on a more positive note however, with the Empire manufacturing index moving strongly into positive territory from -0.55 in July to 12.08 in August. While the number is helping to reverse some of the earlier strength in the greenback, it is unlikely to fully change the momentum. Meanwhile, US Treasury’s capital flows data showed a net long-term inflow of $90.7B while the NAHB housing index is seen rising to 18 in August. Lower oil prices are weighing on the Canadian dollar today, while Latin American currencies are al so weaker.
Published on Mon, Aug 17 2009, 14:01 GMT
6
0
Currency markets are largely consolidating this morning
Fri, Aug 14 2009, 13:53 GMT
by Wells Fargo Research Team
Market Summary
Currency markets are largely consolidating this morning. The New Zealand dollar is the strongest major currency but the Japanese yen is surprisingly firmer as well, while global equity markets are mixed. On the data front, soft CPI data in the Eurozone and the US points to the notion that while global economic activity has stabilized, it is still too soon to discount deflationary risks. This view appears to be mostly shared by central bankers around the world, and at least as far as the US Federal Reserve is concerned, there are still few prospects for a move away from the current very accommodative monetary policy settings in the coming months. One central bank adopting a more hawkish tone is the Reserve Bank of Australia, with today’s comments by Governor Stevens hinting at future rate hikes. Overall, we expect consolidation to dominate the rest of the trading day, with early signs of a weaker opening on Wall Street lending some modest safe-haven support to the greenback.
Regional Highlights
Asia/Pacific
Regional currency trends are mixed and to some extent defying familiar patterns this morning. While the New Zealand dollar is the best performer among the majors, the Japanese yen is not too far behind. Equity markets were also mixed as a decline in China’s stock market indices contrasted with modest gains elsewhere. Economic data was generally supportive for the global recovery optimism. Japan’s tertiary industry index rose by 0.1% m/m in June, while Singapore’s retail sales grew by 2.3% m/m. News were also positive for the Australian dollar after the central bank governor Stevens struck a generally hawkish tone in his comments, delivering an upbeat assessment of the economy and saying rates will have to be raised from their current “emergency” levels some time in the future.
Europe
The euro is slightly firmer against the dollar, having recovered from an earlier disappointment after the final estimate of the July CPI for the region showed a steeper than originally reported decline of 0.7% y/y. Although yesterday’s Q2 GDP numbers were quite encouraging, this release suggests that it is still too early to discount deflationary risks. Elsewhere, the British pound and the Swiss franc are holding steady against the greenback and are being outperformed by the Swedish krona, which rose after Sweden’s jobless rate unexpectedly held steady at 5% in July. Meanwhile the shekel is little changed after Israel’s consumer price growth slowed to 3.5% y/y in July.
Americas
It is a busy day for US economic data, starting with the July CPI release which came in slightly softer than expected. Headline CPI fell 2.1% y/y, while the core inflation slowed to 1.5% y/y. Although inflation is typically a lagging indicator, these numbers do suggest that despite stabilization in economic activity, the threat of re-emerging inflation remains a very distant one. In other news, US industrial production rebounded by 0.5% m/m in July, the first gain in nine months, while the preliminary estimate of August Michigan consumer confidence is expected to show an improvement to 69. Meanwhile, the Canadian dollar is gaining after June manufacturing shipments rebounded by 1.9% m/m. Higher prices for petroleum were responsible for part of the rise, but a 1.1% gain in volume terms does suggest that the momentum is starting to improve. Elsewhere, the Chilean peso is weaker after the central bank held rates steady at 0.50% yesterday and left intact the current ‘complementary’ stimulus mea sures.
Published on Fri, Aug 14 2009, 13:53 GMT
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There is a steady flow of news from Europe today
Fri, Aug 7 2009, 14:28 GMT
by Wells Fargo Research Team
Market Summary
As always the U.S. jobs report is front and center, and the market reaction to the smaller than expected July payrolls decline has been varied and interesting. The immediate and instinctive reaction was a sharp dollar sell-off on the favorable jobs print, but the greenback has since recovered some ground against the major currencies. The euro then moved lower than its pre-payrolls level as did the British pound, as perhaps market investors begin to think that good news for the U.S. economy might be good news for the dollar. However, even those secondary moves are now reversing, and the lasting impact of the jobs figures is still far from clear. The reaction in the Japanese yen has been much more straightforward – it is weaker – while emerging currencies such as the Mexican peso and Brazilian real are noticeably higher after the report. An important takeaway is that the tight inverse correlation between the dollar and equities is potentially easing, and we are not seeing wholesale dollar selling. If so, relative economic performance will become increasingly important, and on that basis, we still expect the dollar can outperform the euro and the yen in the months and quarters ahead.
Regional Highlights
Asia/Pacific
The Australian dollar is lower despite a relatively constructive outlook from the RBA’s Quarterly Statement on Monetary Policy. The central bank raised its GDP forecast (and no longer predicts a recession in 2009), while keeping its CPI inflation forecasts little changed. The Bank said that interest rates are appropriate for now, while also hinting at the possibility of future monetary tightening. The NZ dollar is higher, but the yen is sliding after a better than expected U.S. jobs report. Across Asia, the only releases of note were a rise in Taiwan’s July trade surplus to US$2.03B, and a fall in India’s wholesale prices of 1.58% y/y. Most regional equity markets are down as are most regional currencies, led lower by the rupee and ringgit.
Europe
There is a steady flow of news from Europe today. Germany’s June industrial output unexpectedly dipped 0.1% m/m, although the June current account surplus jumped to E13.3B. Exports and imports both rose sharply in the June month. Italian Q2 GDP provided an early hint of what Eurozone second quarter economic growth might look like. Italy’s GDP fell 0.5% q/q, slightly less than expected, and early forecasts are that Eurozone wide GDP will fall by the same amount for the April-June quarter. Switzerland’s July unemployment rate edged up to 3.9%, while Norwegian June industrial output unexpectedly fell by 0.6% m/m. In the U.K., July core producer output prices slowed less than expected to 0.2% y/y. Overall, today’s data is a mixed bag, and European currencies are mixed as well, even in the wake of the U.S. jobs report.
Americas
As is typical, the U.S. employment report is dominating today financial market activity. Nonfarm payrolls fell by 247,000, less than expected and the smallest decline since August 2008. Revisions also pointed to smaller job declines in previous months than initially reported, while the jobless rate actually dipped slightly to 9.4%. The better than expected U.S. figures compare to a disappointing Canadian jobs report. July employment fell by 44,500, three times as much as forecast, although the jobless rate did manage to hold at 8.6%. Later today, Canada’s July manufacturing PMI is forecast to ease to 54.0, while Mexico’s July CPI is forecast to slow to 5.46% y/y. While the Canadian dollar is down, the Mexican peso and Brazilian real are firmer, helped by the encouraging U.S. jobs re port.
Published on Fri, Aug 7 2009, 14:28 GMT
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The dollar is slightly stronger on balance today
Thu, Aug 6 2009, 13:50 GMT
by Wells Fargo Research Team
Market Summary
The dollar is slightly stronger on balance today, and is probably entering the typical ‘waiting period’ ahead of the monthly U.S. payrolls release. The greenback is up against virtually all of the G10 currencies, despite global equity markets and U.S. equity futures that are generally firmer. That points to at least a partial and temporary loosening in the strongly inverse dollar/equity relationship that has prevailed in recent weeks. Country-specific factors are also influencing international currencies. The British pound is noticeably lower after the Bank of England somewhat unexpectedly expanded its bond purchase program, while the Australian dollar is up on the back of a firmer employment report. The euro is lower today, albeit only modestly, after the European Central Bank offered a ‘steady as she goes’ monetary policy decision. For the day ahead we suspect the greenback will tread water, while tomorrow U.S. jobs will be key for FX market direction. We suspect the most decisive market reaction would be to an unexpectedly large jobs decline, which based on general market patterns should contribute to U.S. dollar strength.
Regional Highlights
Asia/Pacific
The Australian dollar is mildly higher against the greenback after employment unexpectedly jumped in July. Jobs gained by 32,200 in the month while the jobless rate held steady at 5.8%. The NZ dollar in contrast is weaker as Q2 employment fell by 0.4% q/q while the unemployment rate rose to a nine-year high of 6%. The Japanese yen is lower – there is little local data today, but there are reports that the central bank will project deflation continuing through 2011 when it updates its forecast later this year (October). Ongoing deflation concerns are consistent with an ongoing easy monetary policy stance from the Bank of Japan. Among the other Asian currencies, the ringgit and Philippine are stronger, while the rupiah and rupee are weaker.
Europe
The big news today is the further easing in monetary policy from the Bank of England. The central bank held its benchmark interest rate at 0.50%. But it did increase the size of its bond purchase program by 50B pounds to 175B pounds financed by issuing bank reserves (that is, printing money). The size and timing of the program increase was unexpected (analysts were split almost 50/50 on whether the central bank would increase the size of the program). As a result the pound is down more than ½% in response, and among the weakest G10 currencies today. The European Central Bank held its Refi rate at 1.00% as expected, while ECB President Trichet said that interest rates are ‘appropriate’. Mr. Trichet also said that pace of economic contraction was clearly slowing and that risks to the outlook were balanced. The signal of a clear ‘wait-and-see’ stance from the ECB provided a modest boost to the euro, which is nonetheless down against the dollar on the day. In other central bank action the Czech National Bank cut its Repo rate by 25b to a record-low 1.25%. On the data front German June factory orders jumped 4.5% m/m, while Switzerland’s Q3 consumer confidence fell further to -42.
Americas
There are just a couple of releases to note from the region today. Initial jobless claims fell more than expected in the latest week by 38,000 to 550,000, while continuing claims rose by 69,000 to 6,310,000. There do not appear to be significant distortions in this week’s figures, and thus the drop in initial claims reflects at least a modest underlying improvement. In other news Canadian June building permits rose 1% m/m, Chile’s CPI inflation slowed to just 0.3% y/y in July, and the Mexican peso is firmer after Moody’s affirmed a stable outlook for the count ry’s credit rating.
Published on Thu, Aug 6 2009, 13:50 GMT
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Asian currencies are weaker against the greenback
Wed, Aug 5 2009, 13:40 GMT
by Wells Fargo Research Team
Market Summary
The dollar is little changed overall, recovering from earlier intra-day weakness. In fact, the greenback’s trends have been decidedly mixed today. The dollar is firmer against most Asian currencies, as downward pressures of Asian equity markets put downward pressure on regional currencies as well. But European currencies fared better in earlier trading, with the pound and the Norwegian krone doing particularly well. The U.K. was helped by firm economic figures: tomorrow the Bank of England announces its monetary policy decision, and sentiment appears to be shifting towards the central bank not expanding the existing size of its bond purchase program. As the New York day gets underway, the larger than expected fall in the July private payrolls estimate was a slight disappointment. U.S. equity futures moved slightly to the downside, and the dollar and to a lesser extent the yen made modest gains.
More figures are seemingly needed to challenge the prevailing optimistic economic view: watch for the ISM services index today, and the payrolls report on Friday.
Regional Highlights
Asia/Pacific
Asian currencies are weaker against the greenback, on balance. The won is lower by around 0.5%, while the Indonesian rupiah is also down. Indonesia central bank cut its reference rate by 25bp to 6.50%, while also hinting that further rate cuts were unlikely. In data elsewhere across the region, the Philippines July CPI slowed to just 0.2% y/y while Taiwan’s July CPI fell by 2.33% y/y. Malaysia June trade surplus eased slightly to 9.12B ringgit, though exports and imports were both down sharply on a year/year basis.
The Chinese central bank repeated that it will maintain a moderate loose monetary policy, while also pledging to maintain the renminbi at a reasonable and balanced level. The NZ dollar is holding its own against the greenback, helped by a reported rise in milk powder prices, while the Australian dollar is down despite an unexpected narrowing in the June trade deficit to A$441M.
Europe
The pound is one of the strongest G10 currencies today, boosted by a raft of strong economic figures. The July services PMI rose further to 53.2, July house prices rose 1.1% m/m, and June industrial output unexpectedly gained 0.5% m/m. The Bank of England announces its monetary policy decision tomorrow, with a majority of primary dealers anticipating the central bank will not expand its bond purchase program. For the Eurozone the July services PMI was revised very slightly higher to 45.7, while June retail sales fell by 0.2% m/m. In other regional currency moves the Norwegian krone is stronger, but the euro and Swiss franc are lower, coming under some pressure as U.S. equity futures move to the downside.
Americas
The U.S. dollar is gaining some traction early in the New York session as equities move to downside. The July ADP private payrolls estimate disappointed slightly, falling by 371,000. All eyes remain on the official jobs report this Friday, where a payroll decline of 328,000 is expected. Also today, the July ISM non-manufacturing index is forecast to rise to 48.0, while June factory orders are expected to dip 0.8% m/m. The Canadian dollar is weaker against the greenback – yesterday, Canadian finance minister Jim Flaherty expressed concern about the currency’s ‘rapid’ appreciation, and said there are steps that could be taken from time to time. In other regional news Chile’s June index of economic activity fell 4% y/y, a bit more than expected, while Mexican July consumer confidence is a lso on today’s schedule.
Published on Wed, Aug 5 2009, 13:40 GMT
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The dollar is down extending its decline from Friday
Mon, Aug 3 2009, 13:41 GMT
by Wells Fargo Research Team
Market Summary
The dollar is down extending its decline from Friday, as the close inverse correlation between stronger equity markets and a weaker greenback remains an important driver of FX markets. The dollar slipped Friday as a small U.S. GDP decline spurred hopes that recession is ending, while today gains in manufacturing surveys and favorable financial sector earning are adding to an upbeat mood. Equity markets are stronger across all of the major regions, a trend that is helping both the G10 and emerging currencies. Several currencies are reaching fresh multi-month highs against the greenback, including the Australian, New Zealand and Canadian dollars, the British pound and Scandinavian currencies, along with many emerging market currencies. In fact one of the few currencies that has not yet reached a new high is the euro, although that currency is testing the upper end of its trading range since early June. While we believe the strongly inverse dollar/equities correlation will ease of time, should the euro’s prior peak give way a quick move to the upside can’t be ruled out, and the near-term risks appear to be tilted in that direction.
Regional Highlights
Asia/Pacific
Most Asian currencies are firmer against the dollar, supported by firmer equity markets and generally favorable data. China’s July manufacturing PMI remained in growth territory, rising further to 52.8. Australia’s July manufacturing PMI was also stronger, rising to 44.5. Regional equity markets took heart from those numbers and the relatively modest decline in U.S. Q2 GDP reported on Friday. Foreign funds continue to flow into regional bourses as well, with foreigners net buyers of Asian equities for a fifteenth straight day on Monday. The Australian and New Zealand are among the better performing G10 currencies today, while across the region the Indian rupee, Korean won and Malaysian ringgit are also doing well. The won and Indonesian rupiah both reached nine-month highs against the buck. Only the Japanese yen is lagging, falling slightly against the buck.
Europe
European currencies are up, a reflection of overall weakness but also helped by favorable economic figures. Of particular note the British pound is reaching fresh nine-month highs today as the July manufacturing PMI rose to 50.8, returning to growth territory for the first time since April 2008. The euro and Swiss franc are also gaining, albeit more modestly. Switzerland’s July manufacturing PMI rose more than expected to 44.3, while the Eurozone manufacturing PMI was revised higher to 46.3. Partially offsetting that good Eurozone news was an unexpected 1.8% m/m fall in Germany’s June retail sales, while May sales were also revised to show a decline. The Norwegian krone is also among today’s best G10 performers, as oil prices continue to move higher.
Americas
It is a reasonably busy day across the Americas today. The U.S. July ISM manufacturing index is forecast to rise further, to 46.5, while U.S. June construction spending is expected to fall 0.5% m/m. In Mexico, July manufacturing and service sector surveys are scheduled for release. Brazil has already released June industrial output figures, rising 0.2% m/m for a sixth straight gain. With Brazil on the road to recovery and the central bank having paused its rate cut cycle, pullbacks in the real should be limited and there is some potential for further gains. In the FX markets the Canadian, Brazilian, Mexican and Chilean currencies are also stronger against the buck, with the Canadian dollar and Brazilian real reaching new multi-month highs against the greenback.
Published on Mon, Aug 3 2009, 13:41 GMT
0
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US Q2 GDP fell by 1.0% q/q annualized
Fri, Jul 31 2009, 14:02 GMT
by Wachovia Research Team
Market Summary
Currency trends are mixed this morning, with the market struggling to find a coherent tone, caught between the influences of economic data and equity market gyrations. A bounce in Asian stock indices drove the yen and the dollar lower overnight, although as has been the case recently, the dollar’s decline stalled after the US markets opened. The US Q1 GDP release showed the recession moderating and the details of the report point to a stronger performance going forward. Despite this, equity futures headed lower after the release, boosting the US dollar. We are seeing signs however, that the link between equities and the dollar is starting to strain, with perhaps only the lower than usual levels of market activity that are typical for summer months preventing a clearer break. The euro is also displaying sings of vulnerability. Despite a generally firmer tone in the euro this morning, it is notable that the currency has struggled to reach new highs despite a stronger t han expected Eurozone economic data lately.
Regional Highlights
Asia/Pacific
A more upbeat mood in the US equity market yesterday carried over to Asian trading, pushing regional stocks and currencies higher against the Japanese yen and the US dollar. While the tide of higher risk appetites lifted a lot of boats, the strength in the Korean won also owes to some better than expected domestic economic data. June industrial output rose by 5.7% m/m, and is now only moderately negative in y/y terms, suggesting that Korean (and regional) economic prospects continue to improve. Among the majors, the Australian and New Zealand dollars are higher today in contrast to a moderately weaker Japanese yen. Japan’s data has been pointing to an economic recovery lately but today’s 1.8% y/y drop in June CPI suggests ongoing deflationary pressures. Also in Japan, June household spending rose by 0.2% y/y and the jobless rate rose to 5.4%.
Europe
The euro is firmer this morning on the back of higher equity markets, although the short-term correlation between the two has become less prominent in recent days, especially during US trading hours. The Eurozone June jobless rate was lower than expected, at 9.4%. Although activity indicators have improved recently, the inflation outlook remains benign with July CPI showing a fall of 0.6% y/y, another record low for the series. The British pound is also firmer this morning despite some weaker than expected consumer confidence numbers and news that the central bank will expand its asset purchase program. The star of the day so far is the Swedish krona after the GDP report showed that the economy stopped contracting in Q2.
Americas
US Q2 GDP fell by 1.0% q/q annualized, a less steep than expected decline, although the Q1 result was revised to a larger 6.4% q/q fall. The details of the report were generally encouraging, with GDP excluding inventories falling by just 0.2%, by far the smallest of four consecutive declines. Prices for personal consumption expenditure rose by a smaller than expected 2% q/q annualized. Economic news was more disappointing north of the border, with Canadian May GDP falling by 0.5% m/m, due to a larger than expected contraction in the goods industries. The US dollar is somewhat stronger versus the Canadian currency in the aftermath of the GDP reports. Elsewhere, the Brazilian real is little changed this morning but stronger over the past couple of sessions after the minutes from the central bank’s policy meeting confirmed a pause in policy easing.
Published on Fri, Jul 31 2009, 14:02 GMT
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For the week, the dollar index is down 1% and the S&P 500 has risen 7%
Fri, Jul 17 2009, 13:26 GMT
by Wachovia Research Team
For the week, the dollar index is down 1% and the S&P 500 has risen 7% as better-than-estimated retail sales boosted consumer shares and results at companies from Goldman Sachs Group Inc. to Johnson & Johnson beat analysts' estimates.
Today, the dollar is stronger as US stock futures and oil prices are lower on mixed earning reports. IBM posted a 12% jump in second quarter profit but other companies like General Electric and Google disappointed investors. GE slipped 1.7% and Google lost 3.5% after reporting a lower rate of revenue growth than in the previous quarter.
CIT Group's potential failure has caused uncertainty in the retail and manufacturing industries where executives scramble to line up private financing.
High yielding currencies like the AUD, NZD, and ZAR are down over .50% as investors' risk appetite has decreased.
Key data out today is Housing Starts, Building Permits, and Citigroup quarterly profits.
Published on Fri, Jul 17 2009, 13:26 GMT
5
0
Today, the dollar is mixed
Thu, Jul 16 2009, 12:25 GMT
by Wachovia Research Team
Yesterday, the dollar index was down as stocks and oil rallied over 3% on positive earnings and a drop in credit card delinquencies.
Better than expected Empire Manufacturing, Industrial Production, and CPI data helped drive the dollar lower against every major currency except the Japanese yen. The Canadian dollar was the big gainer yesterday, climbing almost 2% against the dollar.
Today, the dollar is mixed. JPMorgan Chase reported net income of $2.7 billion in the second quarter, a 36% rise from a year earlier.
Also, China reported Q2 GDP figures which showed that growth rebounded to 7.9, increasing hopes that the world's largest emerging economy would be able to stimulate a global rebound. The euro is up for the second day against the dollar on increased risk taking.
Ratings agency Fitch cut the outlook for New Zealand's long-term sovereign credit rating from stable to negative causing the NZD to give back some of yesterday's gains.
The Japanese yen rose for the first time in four days on news that commercial lender CIT Group Inc. will most likely not receive a federal bailout.
Key data out today is Initial Jobless Claims, Continuing Claims, and NAHB Housing Market Index.
Published on Thu, Jul 16 2009, 12:25 GMT
11
0
The dollar weakened over 1% against the AUD, NZD, and CAD
Wed, Jul 15 2009, 13:20 GMT
by Wachovia Research Team
Yesterday, Goldman Sachs posted its most profitable quarter ever and retail sales rose. As risk aversion eased, the dollar weakened over 1% against the AUD, NZD, and CAD.
Today, the dollar and yen are down against every major currency as the demand for safe-haven currencies has diminished.
Commodity linked currencies, ZAR, AUD, NZD, and CAD, are all up against the dollar as commodity prices increase. Also, contributing to the AUD strength was a statement from the Reserve Bank of Australia indicating their next move will be to hike rates. Stocks in Europe, Asia, and futures in the US are all up this morning on expectations that more positive earnings will be released.
China's FX reserves rose by $178bn in Q2 to over $2.1 trillion, exceeding the sum of the trade surplus. This is a signal that capital is flowing and its economy is recovering.
Key data out of the US today is CPI, Empire Manufacturing, Industrial Production, and Minutes of the June 24 FOMC meeting.
Published on Wed, Jul 15 2009, 13:20 GMT
4
0
Today, investors' risk appetite increased as stocks and commodities rallied
Tue, Jul 14 2009, 12:44 GMT
by Wachovia Research Team
Today, investors' risk appetite increased as stocks and commodities rallied. The yen fell for a second day against the dollar and euro on speculation that Goldman Sachs will report improved earnings.
Higher-yielding currencies like the Australian and New Zealand dollars rose this morning on increased risk taking, and Treasury Secretary Geithner's comments that the global economy is showing signs of a durable stabilization.
The Bank of England's Charles Bean and MPC-designate Adam Posen both affirmed the necessity of quantitative easing policies. Sterling gained on the back of their comments as investors maintain the view that QE is positive for growth.
Data due out of the US later today include PPI, Advance Retail Sales, and Business Inventories.
Published on Tue, Jul 14 2009, 12:44 GMT
5
0
Economic news of note today includes Canadian Business Outlook
Mon, Jul 13 2009, 13:47 GMT
by Wachovia Research Team
The Japanese yen rose broadly this morning hitting a five-month high against the dollar and an eight-week high against the Australian dollar as concern over upcoming U.S. corporate earnings heightened investors' aversion to risk. Friday's weaker-than-expected U.S. consumer sentiment data sparked more concerns about a flagging economic recovery, and investors will be cautious before key data such as the German ZEW survey and U.S. retail sales figures tomorrow. Commodity-based currencies such as the Australian and New Zealand dollars were hit hard by further falls in oil prices. The AUD fell to nearly a two month low against the U.S. dollar. The euro inched into positive territory on the day against the dollar this morning as European equities and US equity futures came off their lowest levels. However, investors remained nervous ahead of some key U.S. corporate results and major economic data this week.
The Taiwan dollar fell to a 2- month closing low this morning on fund outflows from their equity markets, which fell following news of a possible delay in the signing of a long-awaited financial deal with China. U.S. dollar selling by exporters helped cut some losses, but the Taiwan currency ended at its weakest close since April 30. Other Asian currencies weakened overnight as well. The South Korean won suffered its biggest daily percentage loss in 3- months as the local stock market posted its largest loss in more than four months amid worries about the outlook for corporate earnings.
Economic news of note today includes Canadian Business Outlook, US Monthly Budget Statement, and UK House Price Balance.
Published on Mon, Jul 13 2009, 13:47 GMT
0
1
The central bank cut its main interest rate
Fri, Jul 10 2009, 12:24 GMT
by Wachovia Research Team
Despite comments from a Chinese delegate at the G8 summit calling for reforms to the world?s currency system, the US dollar is slightly stronger this morning against most of its major counterparts. US equities also closed higher as investor confidence improved. Further, initial jobless claims came in somewhat better than expected providing additional support to the US dollar.
After rallying yesterday, the GBP has faltered this morning on concerns over the coming political elections, an expanding balance sheet and persisting unemployment. The Swiss franc also declined versus the greenback on commentary from the Swiss National Bank that they remain committed to their current intervention strategy.
The euro fell against the US dollar and the Japanese yen after on concerns over the economic condition of several Eastern European countries and their pending aid packages from the IMF. There seems to be an overall feeling that the recovery in the euro-zone may take longer than expected.
Finally, the Russian ruble extended its declines this morning as oil prices fell to 59.52 per barrel and the central bank cut its main interest rate.
Economic data out today includes University of Michigan Confidence and the Import Price Index.
Published on Fri, Jul 10 2009, 12:24 GMT
3
0
The dollar weakened against most major currencies overnight
Thu, Jul 9 2009, 12:55 GMT
by Wachovia Research Team
The dollar weakened against most major currencies overnight. After a successful 10-year treasury auction and U.S. equities recovery from early losses, the US dollar pared yesterday?s gains against the euro, pound and Canadian dollar. The greenback did manage to regain some of the dramatic losses seen versus the Japanese yen, after trading at a 4-month low yesterday.
After 4 straight days of declines, the U.K. pound gained this morning against the US dollar, after the Bank of England held the size of its current quantitative easing program steady and kept its target interest rate at 0.50 percent. An expansion of the asset purchase program may have been interpreted as an indication that the current program has not been effective. The euro also rebounded from yesterday after German industrial production data came in better than expected.
Among the biggest gainers against the US dollar this morning is the Swedish krona, which strengthened on better than expected industrial orders.
Data out today includes US Initial Jobless Claims, Wholesale Inventories, and ICSC Chain Store Sales
Published on Thu, Jul 9 2009, 12:55 GMT
4
0
The USD is slightly stronger this morning against most major currencies
Wed, Jul 8 2009, 13:09 GMT
by Wachovia Research Team
The USD is slightly stronger this morning against most major currencies. The euro initially gained on the USD after stronger-than-expected German industrial output figures. German industrial output rose 3.7 percent on the month in May. Forecasts last week showed output would rise by 0.5 percent but they were being revised up after strong industrial orders figures the previous day. However, the USD slowly gained back any losses over night.
Reuters is reporting that statements being prepared for issue at meetings of G8 leaders have no direct reference to currency or foreign exchange. The meetings taking place in L'Aquila, Italy, are being closely watched by financial markets due to China?s insistence on a debate on global reserve currencies. China is arguing that there should be a shift over time away from a global financial system dependent solely on the U.S. dollar.
The USD is performing well against most major Asian currencies this morning. Recent developments, including weakening Asian stocks, slowing portfolio inflows and a pick-up in central bank intervention to curb currency strength, pointed to near-term weakness in most Asian currencies. The Malaysian ringgit fell to seven-week lows on concerns about the global economy, while risk aversion also weakened the Indonesian rupiah in offshore markets.
Economic releases of note today include US Consumer Credit and Japanese foreign stock purchases.
Published on Wed, Jul 8 2009, 13:09 GMT
6
0
US equity futures are trading nearly flat this morning
Tue, Jul 7 2009, 12:45 GMT
by Wachovia Research Team
The euro hit a high for Tuesday morning trading after stronger than surveyed German manufacturing figures suggested the country's economy was improving, but gains were limited as the market remained cautious about risk. The retraction of risk appetite began with dismal U.S. employment figures late last week, which underlined continuing weakness in the global economy and raised the concern that the risk rally seen in past months may have been overdone.
Despite the dollar's broad gains it has been mostly unchanged on the day against the JPY. The USD has failed to gain against the yen as traders continued to flock to the Japanese currency as a popular safe-haven choice. JPY still trades near a ten day high against the USD while higher-risk currencies including the euro, sterling and the Australian dollar each fell as much as roughly half a percent against the Japanese currency.
The Australian dollar strengthened this morning after the local central bank sounded slightly more upbeat in its latest policy statement. The RBA kept interest rates unchanged at a record low of 3 percent as expected. While it said that inflation prospects allowed room for further easing, the RBA argued that economic conditions in Australia were not as weak as expected a few months ago. It pointed to considerable strengthening in China, as evidence the global economy was stabilizing.
US equity futures are trading nearly flat this morning. Economic releases of note today include Japanese Machine Orders and Japanese Current Accounts.
Published on Tue, Jul 7 2009, 12:45 GMT
5
0
Risk aversion was the main theme of yesterday's trading session
Fri, Jul 3 2009, 12:25 GMT
by Wachovia Research Team
Risk aversion was the main theme of yesterday's trading session, as US payrolls declined more than expected and unemployment rose to 9.5%. The dollar and the yen strengthened as speculation rose that economic recovery will not occur as quickly as anticipated. The Canadian, New Zealand, and Australian dollars fell on lower commodity prices and decreased investor appetite for risky assets. The euro extended declines after the ECB left rates unchanged and reported that the beginning of the recovery will likely not occur until the middle of 2010. The Swiss franc fell against the euro and the dollar after central bank board member Thomas Jordan stated they are prepared to intervene to prevent currency appreciation.
Overnight, the dollar continued its rally against most major currencies as euro-zone retail sales fell more than expected. The pound also fell against the dollar as a report stated that UK service industries grew at a slower pace in June. Australian and New Zealand dollars strengthened as Asian equities rebounded.
There are no major economic releases today and trading is expected to be light due to the US holiday.
Published on Fri, Jul 3 2009, 12:25 GMT
1
0
The US dollar and the yen fell against most major currencies
Thu, Jul 2 2009, 13:25 GMT
by Wachovia Research Team
Yesterday, the US dollar and the yen fell against most major currencies as positive US and Chinese factory reports boosted stocks and increased investors' risk appetite. The euro reached its highest level against the dollar in almost a month on additional Chinese comments questioning the status of the greenback as a reserve currency.
The dollar and the yen strengthened overnight as risk appetite waned on expectations that the US unemployment rate rose to a 26-year high. The euro fell in anticipation of today's ECB meeting, and there was little change after policy makers kept the rate unchanged at 1%. Adding further strength to the dollar was a statement from a Chinese Foreign Ministry official that he was not aware of a plan to discuss a new reserve currency at the next G8 meeting, as was reported yesterday. The Swedish krona fell after the Riksbank unexpectedly lowered its benchmark rate by 25 bps to 0.25%.
US unemployment rate, nonfarm payrolls, and initial jobless claims will be released today.
Published on Thu, Jul 2 2009, 13:25 GMT
7
0
The US dollar strengthened against the euro and the pound yesterday
Wed, Jul 1 2009, 12:25 GMT
by Wachovia Research Team
The US dollar strengthened against the euro and the pound yesterday as lower equities and a surprising drop in US consumer confidence intensified concerns over the state of the global economy. The Canadian dollar dropped to a 6-week low on falling crude oil prices and worse-than-expected Canadian retail sales and jobs numbers.
Overnight, the yen depreciated against the dollar, Swiss franc, and the pound, and fell to a two-week low against the euro as a Chinese manufacturing report eased global economic concerns and reduced demand for the safe-haven currency. A disappointing Tankan survey from the Bank of Japan also contributed to a weaker yen. The euro strengthened against the dollar as retail sales in Germany rose and European equities gained. The Canadian dollar rose against the dollar as crude rebounded.
Domestic economic releases include the ISM Manufacturing report, in addition to Pending Home Sales and Construction Spending.
Published on Wed, Jul 1 2009, 12:25 GMT
3
0
Daily Market Report
Tue, Jun 30 2009, 12:50 GMT
by Wachovia Research Team
Yesterday, the US dollar and the yen fell against the euro after business and consumer confidence rose causing risk appetite to improve. The Swedish krona was the biggest winner versus the dollar as demand grew for Swedish debt. The Canadian dollar traded in a narrow range in anticipation of reports that may show the nation's economy shrank and US unemployment rose at a slower pace, despite a rise in crude oil prices.
The euro continued yesterday's rally as equities rose and optimism for a global economic recovery increased. Sterling rose against the dollar overnight to the highest level since October on favorable house prices and consumer confidence reports before erasing its gains as weaker-than-expected GDP numbers were released. The Australian dollar rose and the greenback fell as emerging-market equities trended higher, decreasing demand for the safe-haven currency.
US consumer confidence will be reported today, with an expectation that confidence rose to the highest level since September. Also released today are the US CaseShiller Home Price Index and the Japanese Tankan survey.
Published on Tue, Jun 30 2009, 12:50 GMT
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The Swiss franc ended the week lower against the euro
Mon, Jun 29 2009, 13:56 GMT
by Wachovia Research Team
The US dollar depreciated against most major currencies on Friday after China's central bank again called for a new reserve currency. The Swiss franc ended the week lower against the euro and the dollar as the central bank allegedly sold its currency to support the economy.
Overnight, the dollar rose against 14 of the 16 major currencies after the People's Bank of China Governor Zhou stated that the foreign exchange reserve policy of the United States "is always quite stable." The yen fell after a report showed Japanese retail sales fell 2.8% in May from a year earlier and industrial output rose less than expected. The Australian and New Zealand dollars fell for the first time in five days as demand for the greenback rose and Asian stocks declined. The euro strengthened after a report showed that consumer confidence in the euro-zone improved.
No major economic releases today.
Published on Mon, Jun 29 2009, 13:56 GMT
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Yesterday, the greenback gave up some of Wednesday's gains against most major currencies
Fri, Jun 26 2009, 12:57 GMT
by Wachovia Research Team
Yesterday, the greenback gave up some of Wednesday's gains against most major currencies as risk sentiment improved. It especially struggled against the New Zealand dollar as crude and gold rallied in the afternoon. Domestic equities had a strong day yesterday closing up 2% across the board. Initial jobless claims came in better than expected at 627,000.
The dollar continued to fall overnight as global equities rose across the board on better than expected corporate earnings and higher commodity prices. The greenback was also hurt after the People's Bank of China said the IMF should move toward a world reserve currency and away from the dollar. As of writing, the dollar is down over 0.5% against EUR, GBP, JPY, CAD, MXN, and CHF. The kiwi experienced a sharp decline at the beginning of Asian trading after domestic GDP declined 1% last quarter, exceeding expectations and marking the fifth consecutive quarterly decline.
Later this morning, the University of Michigan index is due, but will probably have little effect on the currency market.
Published on Fri, Jun 26 2009, 12:57 GMT
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Initial jobless claims and Q1 GDP numbers are scheduled to be released today
Thu, Jun 25 2009, 13:36 GMT
by Wachovia Research Team
The greenback experienced a strong rally yesterday on news from the FOMC meeting and unexpectedly strong durable goods numbers. The Fed left both rates and their bond purchase program unchanged while also stating that the pace of domestic economic contraction is slowing. The comment around the economic contraction was especially important as last month they said the pace appeared to be somewhat slower. The Swiss franc fell nearly 2% during NY trading yesterday on rumors the SNB intervened in currency markets less than a week after its Chairman said it would act to restrict "irrational appreciation." The loonie and euro also struggled on the Fed news as they both lost over 1% relative to the dollar.
The dollar held onto its gains against most major currencies overnight, exception of the Mexican peso, and appreciated further against the Japanese yen and British pound. Sterling fell after European equity markets declined following IMF comments stating that Irish banks face up to $49 billion in losses through 2010. The pound was also hurt after BoE Governor Mervyn King said their domestic economic recovery will be slow. As of writing, the loonie is trading at its weakest level since May 19th and the Swiss franc continues to slide against the dollar and euro after yesterday's central bank intervention.
Initial jobless claims and Q1 GDP numbers are scheduled to be released today
Published on Thu, Jun 25 2009, 13:36 GMT
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In economic news, the FOMC announcement stands at the forefront
Wed, Jun 24 2009, 12:58 GMT
by Wachovia Research Team
Yesterday, the dollar depreciated against most currencies as it was down nearly 1% against EUR, GBP, AUD, NZD, and CHF on the weak existing home sales number. The dollar had its worst performance against the euro in six weeks amid speculation the Fed will keep rates below the ECB's benchmark rate through the end of 2009. As the dollar weakened, commodities rallied causing the commodity linked Canadian dollar to reverse its losses from earlier in the day.
The greenback continued to slide overnight against most major currencies, save the Japanese Yen, as the market awaited the Fed announcement. Most participants held firm that the Fed would keep its rates low through the end of the year. Earlier this morning, the Swiss franc depreciated nearly 2.5% against the dollar. The move was due to speculation that the Swiss National Bank was intervening by selling the franc to keep its value down. At the start of NY trading, we have seen the dollar begin to bounce higher from its overnight lows.
In economic news, the FOMC announcement stands at the forefront. Again, the market fully anticipates the rate to remain near zero, so close attention will be paid to any comments around growth, inflationary concerns, and especially the dollar. Besides the Fed announcement, durable goods orders data and new home sales data will be released today.
Published on Wed, Jun 24 2009, 12:58 GMT
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The dollar held its ground against most currencies
Tue, Jun 23 2009, 13:40 GMT
by Wachovia Research Team
During NY hours yesterday, the dollar held its ground against most currencies, in some cases appreciating further, except against the Mexican peso which strengthened over 1%. On the stronger dollar and weak growth forecasts, crude continued to fall from its recent highs seen two weeks ago and as a result commodity currencies such as CAD, AUD, and NZD weakened further. The Dow and S&P struggled throughout the day following the World Bank's growth announcement and closed down 2.35% and 3.06% respectively.
Overnight, the dollar was mixed as it weakened against EUR, CHF, and JPY, but strengthened against GBP and CAD. Sterling was hurt after the BoE chief economist stated that a weaker pound is making British assets more attractive making exchange rates a "key channel" in supporting economic growth. This morning, the euro overcame yesterday's losses after German consumer confidence rose well above expectations and PMI numbers were broadly stronger as well. The Canadian dollar continues to remain weak this morning even though Canadian Finance Minister Jim Flaherty said yesterday that the domestic economy may begin to grow again in the latter part of 2009.
Various economic releases are scheduled for today with US existing home sales and the Richmond Fed index this morning and consumer confidence later this afternoon. The Fed begins its two day meeting today and will make its rate announcement tomorrow. Be sure to pay close attention to their growth and inflationary comments following the meeting as the Fed will most likely maintain rates at their current levels.
Published on Tue, Jun 23 2009, 13:40 GMT
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The World Bank lowered its forecast for the global economy
Mon, Jun 22 2009, 13:19 GMT
by Wachovia Research Team
The dollar traded lower towards the end of last week and closed largely unchanged from the previous Friday's close. The dollar's weakness was largely due to speculation that the global recession is easing, which prompted investors to sell dollars and purchase higher yielding currencies. On Friday, EU leaders issued a draft statement saying that further economic stimulus is no longer warranted. This is the first widespread acknowledgement of a potential turnaround in the Euro-zone, potentially supporting euro purchases by investors.
This morning the market is responding to a forecast comment from the World Bank. The World Bank lowered its forecast for the global economy saying it would shrink 2.9% this year and only grow 2% next year with developing countries facing a slower recovery relative to richer nations. The US dollar and Japanese Yen both benefited from the news as risk appetite dipped and investors pursued safe assets. The euro fell nearly 1% against the dollar even though the German IFO numbers were reported higher than expectations. Sterling was slightly hurt by a housing report that showed a decline in U.K. home asking prices in June; the first time in five months. Commodity currencies, such as CAD, NZD, and AUD, depreciated over 1% against the US dollar on the World Bank announcement, continued tension in Iran and weaker prices in crude.
There are no major economic data releases scheduled for today.
Published on Mon, Jun 22 2009, 13:19 GMT
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The dollar is mixed this morning
Fri, Jun 19 2009, 13:28 GMT
by Wachovia Research Team
The dollar is mixed this morning, stronger against the yen but weaker against commodity currencies and European nations.
Renewed strength in the oil markets has given some support to the Canadian dollar, with crude oil currently back over $72 a barrel. The loonie has rallied accordingly, up nearly a percent since late last night. As mentioned yesterday, inflation figures in Canada were higher than expected, potentially pointing towards a pause in the BOC quantitative easing program. This would ultimately result in higher interest rates and foreign funds flowing towards the resulting higher yields.
Investors seemed more willing to put "risk" back on the table this morning, with the Japanese yen weaker by over a percent in overnight trading. The yen remains up against the dollar since the beginning of the week; however strength in European equity markets and positive futures for domestic stocks may help reverse that strength as trading winds down today.
European Union leaders met today in Brussels, to discuss the outlook for the European economies. Language in their resulting draft statement points towards a new approach to handling the downturn. "Further budget stimulus would not be warranted and attention should shift toward consolidation, keeping pace with economic recovery", the draft said. The language is a significant change from previous releases, as this is the first widespread acknowledgement of a potential turnaround in the EU economy. The euro is relatively flat this morning despite the announcement, having traded in a relatively tight range over the last few days.
The pound is up over 1.5% against the dollar since yesterday, following comments from Mervyn King, the Bank of England's Governor. He stated that the UK economic contraction is starting to "flatten off". Recent unemployment numbers in the UK have been less than economists' forecasts, further supporting the pound. The pound sterling is up over 4% since early June of this year.
There are no notable domestic releases this morning; however Tuesday and Wednesday of next week will be busy. Existing Home Sales and Consumer Confidence will be released on Tuesday, while Wednesday will be focused on the FOMC rate decision, expected to remain at .25%.
Published on Fri, Jun 19 2009, 13:28 GMT
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Currently at $71 a barrel despite briefly touching $69 late yesterday
Thu, Jun 18 2009, 12:43 GMT
by Wachovia Research Team
Oil has reversed it's recent decline over the last few days, currently at $71 a barrel despite briefly touching $69 late yesterday. The Canadian dollar has reacted accordingly, rising 1.5% against the dollar in the last twelve hours. Inflation figures released in Canada this morning were higher than expected, potentially pointing towards fewer BOC measures to keep interest rates down.
The recent eight month highs seen in crude oil have brought inflation concerns to many Asian nations, most notably India and the Phillipines. Inflation woes may force governing bodies to increase interest rates ahead of schedule, potentially damaging their already weakened economies. Both currencies are down over 3% versus the USD since the beginning of the month. South Korea is in a similar situation, having weakened substantially over the last month, however some of that has come from uncertainty over North Korea's recent push for nuclear weaponry.
The pound sterling is down over 1.5% this morning, off weaker than expected Retail Sales figures. Year over year numbers were down 1.6%, compared to estimates of -.4%. Coupled with weaker equity markets in Europe, the pound has fallen to eight day lows off the news.
Domestic treasuries are stronger over the last week, despite seeing yields climb above 4.75% in the 30 year bond. Yields in the long bond have fallen to 4.51% as of this morning, giving some ease to those looking to purchase of refinance homes. Yesterday's MBA Mortgage Applications numbers were down 15.8%, compared to a prior figure of down 7.2%.
Key domestic releases today include Initial and Continuing Claims, as well as Leading Indicators. Initial Jobless Claims are expected to come in at 604k, a number significantly higher may be negative for equity markets today.
Published on Thu, Jun 18 2009, 12:43 GMT
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Equity indices around the world are down today
Wed, Jun 17 2009, 14:30 GMT
by Wachovia Research Team
The BRIC nations yesterday collectively called for a "more diversified" monetary system, though the effect on the US dollar has been minimal. Dollar strength from the beginning of the week has continued in overnight trading, with the dollar up most notably against the pound sterling and Canadian dollar.
Crude oil is down from a high of just under $73 yesterday to $70 this morning, causing some weakness in the Canadian dollar. Since close of trading yesterday, the USD is stronger by nearly 2%.
The pound sterling is also weaker this morning, against both the dollar and euro. Yesterday's UK Jobless figures were once again higher than the month previous, however they did not outpace expectations. Bank of England policy makers voted to continue purchasing asset's in the open market, off continued predictions for weakness in the UK economy. The economy is expected to shrink another 3.5% this year according to the UK government. Sterling is down nearly 2% overnight versus the dollar, and over 1% against the euro.
Equity indices around the world are down today, with domestic futures pointing towards a slightly lower open. After peaking last Thursday at just under 8900, the Dow Jones Industrial Average has fallen 4.5% to 8504 at the close yesterday.
Housing Starts data yesterday was somewhat higher than expectations, coming in at 532k versus forecasts of 485k. Though a sign of potential hope in the housing markets, it's important to note that even at the 532k level, these are still the lowest numbers in over 50 years. Releases this morning include MBA Mortgage Applications, as well as CPI figures.
Published on Wed, Jun 17 2009, 14:30 GMT
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The dollar is weaker this morning off higher oil prices
Tue, Jun 16 2009, 12:50 GMT
by Wachovia Research Team
The dollar is weaker this morning off higher oil prices and strength in the European equity markets. S&P 500 futures are slightly positive this morning as well, pointing towards possible further retracement of the dollar strength witnessed yesterday. Crude oil, after having dipped to nearly $69.50 a barrel late yesterday, has rallied back over 3% to slightly above $72 this morning.
The euro is up over a percent versus the dollar today, off new three year high German Investor Confidence numbers. Later today the EU releases CPI (Consumer Price Index) figures, hopefully giving further insight into inflation concerns stemming from recent interest rate cuts.
The BRIC nations meet today to discuss the US dollar's continuing role as an international reserve currency. With combined reserves of over $2.8 trillion, investors follow the patterns of treasury investments that the four nations (Brazil, Russia, India and China) participate in. Recent talk of the countries buying each other's bonds as a way to diversify out of their massive treasury positions has some worried that the value of the dollar may suffer accordingly.
Inflation figures in the UK slowed less than expected, a sign that may pave the way for future rate hikes. A typical way to fight rising inflation is through the raising of interest rates, which in turn attracts investors into the then higher yielding currency. The pound is up nearly 2% versus the dollar this morning following the announcement.
Domestic economic releases today include Housing Starts, Industrial Production and Producer Price Index numbers. Housing Starts are expected to be at 485k, a number north of that would be a sign of unexpected strength in the housing markets, and may fuel a rally in the equity markets.
Published on Tue, Jun 16 2009, 12:50 GMT
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US equities traded down slightly
Thu, Jun 11 2009, 13:19 GMT
by Wachovia Research Team
The US dollar declined against most major currencies yesterday in favor of higher-yielding assets after the Federal Reserve reported that the US recession may be moderating. In line with this trend, the price of crude oil rose 1.4 percent to $72 a barrel and traded above $70 a barrel for a third straight day. US equities traded down slightly.
The greenback also suffered as Russia challenged the status of the dollar as the world?s reserve currency, announcing a plan to buy $20 billion of bonds from the IMF to diversify its US Treasury holdings.
The Australian and New Zealand dollars were among the biggest gainers as Australia reported slowing job losses and New Zealand?s central bank left the country?s interest rate at 2.5 percent. These nations have attracted investors seeking higher yields as confidence in the markets improves.
The euro traded fairly flat against the US dollar overnight as economic concerns in the Euro-zone persist. The British pound strengthened versus the USD as deflationary worries subsided in favor of the idea that the nation could begin to raise interest rates in the coming year.
Brazil?s central bank cut its target rate by 1 percentage point yesterday to 9.25 percent, although they suggested they may slow the pace of cuts going forward.
Data releases today include Advance Retail Sales and Initial Jobless Claims
Published on Thu, Jun 11 2009, 13:19 GMT
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Data out of the US today includes MBA Mortgage Applications and US Trade Deficit
Wed, Jun 10 2009, 12:53 GMT
by Wachovia Research Team
The US dollar weakened slightly yesterday against most major currencies save the Mexican peso and the Japanese yen as investors reacted to news from the Treasury that 10 US banks are approved to repay TARP funds. The announcement encouraged risk taking and raised concerns that the Federal Reserve may begin fiscal tightening sooner than originally expected. US equities finished the session slightly higher with the S&P 500 up .35 percent. Asian and European equities traded higher overnight.
Further support for risk appetite came from European Central Bank discussions to exit the fiscal stimulus measures introduced in recent months and commentary suggesting that the current refi interest rate levels are appropriate. The euro is trading slightly higher versus the USD this morning. The GBP also gained against the greenback after some of the political turmoil stabilized and the country reported that industrial production expanded in April.
The Canadian dollar benefited from increased investor optimism and advances in the price of crude oil to $71 a barrel. Other ?commodity currencies? including the New Zealand and Australian dollars also rallied strongly versus the US dollar.
Data out of the US today includes MBA Mortgage Applications and US Trade Deficit.
Published on Wed, Jun 10 2009, 12:53 GMT
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The dollar gave back early gains this morning
Tue, Jun 9 2009, 12:39 GMT
by Wachovia Research Team
The dollar gave back early gains this morning as the market began to suspect that there is not a strong enough chance of a U.S. interest rate rise later this year to justify pushing the currency higher. The euro slipped against most major currencies after a bigger-than-expected fall in German industry output suggested the euro zone's biggest economy is still suffering from slack global demand for its goods.
The dollar pulled back from early losses, but stayed under pressure due to a rise in GBP. Cable gained momentum on stronger-than-expected British economic data. The USD had climbed after U.S. jobs data late last week stoked the view that U.S. rates may rise from roughly zero at the end of 2009. But its run stalled this morning as a lack of major economic data or events left the market without enough confidence to push the dollar higher.
The Australian dollar bounced off its lowest level in more than a week this morning, but weaker Asian stock markets suppressed most gains stalling its three-month long rally. Although there are no convincing bear signals suggesting that the uptrend of AUD and other high-yielding currencies over the last three months has ended market sentiment has started to show that a sustained run may not be possible.
The South Korean won fell by over 1 percent to set its worst close in nearly two weeks against the USD on Tuesday, dragged down by losses in local equities. Analysts said U.S. stock markets would largely set the tone for the won and other Asian currencies on Wednesday as the South Korean currency has recently been tracking stock markets closely.
Economic news of note this morning includes US Wholesale Inventories and Japanese Machine Orders.
Published on Tue, Jun 9 2009, 12:39 GMT
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Crude oil levels remain just under $69 a barrel
Fri, Jun 5 2009, 12:55 GMT
by Wachovia Research Team
Domestic unemployment figures are to be released this morning at 8:30 EST, with forecasts pointing towards the first rate over 9% in 25 years. Expectations are for 9.2%, however economist reports range from 9.0% to 9.4%.
Despite being at its highest levels in eight months, the Canadian dollar gave back some gains this morning after unemployment numbers were worse than expected. Forecasts centered on an 8.2% unemployment rate, however reports came in somewhat higher at 8.4%. Crude oil levels remain just under $69 a barrel, and will most likely act as support for the CAD despite the poor employment release.
The pound is weaker this morning, off news that two of Gordon Brown's ministers have stepped down. Rumors yesterday of Gordon Brown resigning caused the pound to gap substantially lower in morning trading, falling over 2% immediately after the rumor got out. Pensions Secretary James Purnell and Defence Minister John Hutton are now amongst six ministerial resignations in Gordon's cabinet this week.
Treasuries continue to show weakness, as 10-year yields today reached the highest level since November of last year. Concerns over potential future inflation may be driving the move, as both oil and gold are substantially higher over the last month.
Published on Fri, Jun 5 2009, 12:55 GMT
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The Bank of England kept interest rates unchanged this morning
Thu, Jun 4 2009, 12:59 GMT
by Wachovia Research Team
The Bank of England kept interest rates unchanged this morning, leaving the benchmark interest rate at .50%. This now marks the fourth consecutive month in which the UK has maintained the lowest interest rate in its history. The pound reacted favorably to the announcement, despite consensus forecasts all pointing towards no change. In addition to the rate decision, UK home prices this morning rose by 2.6%, versus a predicted 1% decline. After falling against the dollar by nearly three percent in trading overnight, the pound has regained some ground this morning following the announcements.
Another rate decision will be announced this afternoon as the European Central Bank decides whether or not to deviate from their current one percent benchmark rate. Economist forecasts almost all point towards the ECB holding steady this afternoon as well.
Going into the decision, the euro is down nearly a percent from it's highs earlier this morning.
After cutting rates in April and May of this year, the Russian Central Bank cut rates again this morning to 11.5% from 12%. Russian officials added to the release, stating that if inflation continues to move downward, this pattern of easing will continue. Inflation figures through June 1st of this year were 6.8%, versus the previous year's 7.7%.
President Barack Obama spoke this morning in Cairo, as an effort to ease tensions between the Israeli's and Palestinians. Pointing out some of his family's ties to Muslim ancestry, his speech is part of a movement to improve relations between the US and the Muslim World.
On the domestic front, this morning's Initial Jobless Claims report should give some more clarity on tomorrow's more important Nonfarm Payroll figure. Earlier employment reports this week were more positive that economist's expectations, and may be a sign that the US economy is fairing better than expected. Claims are expected to be 620k at their 8:30am EST announcement.
Published on Thu, Jun 4 2009, 12:59 GMT
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The Australian dollar reached a fresh eight−month high against the dollar
Fri, May 29 2009, 13:07 GMT
by Wachovia Research Team
In light of continued optimism that the worst of the global recession has passed, investors broadly flocked to riskier assets, driving the dollar to multi-month lows against a basket of major currencies. In the immediate term, the market has begun to expect growth in the latter half of this year, repressing the dollar as risk appetite returns.
The euro, fortified by positive German retail sales, experienced its largest monthly gain against the dollar this year. Similarly, the pound is en route to its largest monthly gain in 24 years as better-than-expected U.K. house prices further fueled the currency's recent rally. Renewed optimism boosted other foreign currencies as well, steering the Canadian dollar to its strongest level in 2009.
In the same vein, the Australian dollar reached a fresh eight-month high against the dollar, its largest monthly gain since 1982, as commodities prices soared and risk appetite increased. Extending yesterday's significant rally, the New Zealand dollar continued to strengthen against its U.S. counterpart, reaching the strongest levels since October of last year.
Today's notable economic releases include U.S. GDP Price Index, U.S. Chicago Purchasing Manager data and U.S. Personal Consumption.
Published on Fri, May 29 2009, 13:07 GMT
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Overnight, the Japanese yen plummeted against major currencies
Thu, May 28 2009, 12:35 GMT
by Wachovia Research Team
Overnight, the Japanese yen plummeted against major currencies, notably falling the most in eight weeks against the dollar, as reports illustrated Japanese investors' renewed interest in overseas assets, fueling speculation that the worst of the global recession is over.
On the contrary, the New Zealand dollar enjoyed a broad rally this morning after Standard & Poor's elevated New Zealand's rating and confirmed its AA+ rating at the heel of the government's annual budget announcement.
The high performing pound slowed its recent rally on the back of broad profit taking, although investors remain hopeful that the U.K. financial system is on the road to recovery. As for the euro, the market looks ECB's policy meeting next week, when key rate decisions and plans for a bond purchase program are scheduled for announcement.
Today's notable economic releases include U.S. Initial Jobless Claims and U.S. New Home Sales.
Published on Thu, May 28 2009, 12:35 GMT
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The euro lost further ground against the dollar
Wed, May 27 2009, 12:25 GMT
by Wachovia Research Team
The euro lost further ground against the dollar after ECB released comments discussing the possibility of upcoming rate cuts, as one policymaker indicated that the central bank's lending rate may need to dip below the current 1% to further alleviate the region's economic woes.
Conversely, the pound continued its impressive rally to reach above the 1.60 handle for the first time in nearly seven months, benefiting from growing sanguinity that the bottom of this economic crisis may be behind us. The previously embattled currency had declined almost 20% against the dollar in the past year, causing investors to flock to its undervalued potential now that optimism has returned.
Amidst growing hope about the world economy's eventual recovery, the Australian dollar continues to trade near its highest level in eight month on the back of increased demand for higher-yielding currencies. On the contrary, the Swedish krona weakened during early morning trading after the Swedish Central Bank announced plans to inject $13 billion worth of SEK into the country's reserves in order to facilitate lending, indicating the country's lingering concern over the global financial crisis.
Today's notable economic releases include U.S. House Price Index MoM and U.S. Existing Home Sales.
Published on Wed, May 27 2009, 12:25 GMT
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After dropping to its lowest level in 2009 last Friday
Tue, May 26 2009, 12:38 GMT
by Wachovia Research Team
After dropping to its lowest level in 2009 last Friday, the dollar index rose close to 1% on the day on the back of broad profit taking. The euro retracted some of its significant gains against the dollar, falling from last week's five-month high as German business confidence in May failed to meet the market expectations. Coupled with media skepticism over the health of the German banking system as a whole, this news caused traders take profit in the euro's recent rally, bringing the currency near its intraday low during early New York trading hours.
Similarly, the pound traded lower against the dollar this morning, exacerbated by news of North Korea's continued missile launches, which may consequently elicit safe-haven demand for the dollar. Despite this contraction, the market looks to major U.K. economic releases this week for further signs of sterling recovery, buoyed by the belief that the global economy is slowly recovering.
The South African rand fell almost 2% against the dollar after first quarter GDP reports indicated the country's first recession in 17 years. The yuan experienced its largest daily drop against the dollar in four months as the Chinese central bank set its daily reference rate drastically weaker, prompting market participants to question the Chinese government's intentions in managing its currency.
Today's notable economic releases include U.S. Consumer Confidence.
Published on Tue, May 26 2009, 12:38 GMT
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The Australian dollar continued its climb for a fourth straight day
Thu, May 21 2009, 12:31 GMT
by Wachovia Research Team
The minutes from the FOMC April meeting was released yesterday, and overnight the world reacted to the negative outlook by U.S. officials. Risk aversion increased and the U.S. dollar regained some of its strength as a result.
The U.K. sovereign rating outlook was downgraded by S&P to negative. This revision occurred as a result of S&P?s view that ?the net general government debt burden could approach 100 percent of gross domestic product and remain near that level in the medium term?. The pound fell on this news, dropping below the 200 day GBP/USD moving average. The pound lost ground to the euro as well
The Australian dollar continued its climb for a fourth straight day as, the countries third largest export, gold continues to strengthen.
Economic releases today include: US Initial Jobless Claims, US Leading Indicators, JN BoJ Target Rate.
Published on Thu, May 21 2009, 12:31 GMT
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Economic releases include U.S. Housing Minutes of April 29 FOMC Meeting
Wed, May 20 2009, 12:33 GMT
by Wachovia Research Team
There was little volatility in the currency markets overnight, with the U.S. dollar emerging slightly weaker this morning.
The Canadian dollar gained ground relative to the U.S. dollar for a third day in a row. The continued climb occurred on the back of higher oil prices and an overall increase in global risk appetite.
Japanese Q1 GDP released today, fell 4% quarter over quarter. Reports yesterday indicated that the BoJ may consider accepting U.S. denominated debt as collateral. This potential move coupled with Vice Finance Minister Sugimoto's comments about watching the FX markets closely may be a sign that the Japanese government stands ready to intervene should the economic situation in the country deteriorate any further.
U.K. CPI numbers came in lower than expected this morning, confirming previous comments made by the BoE in the past two weeks. Chancellor Alistair Darling voiced his opinion overnight that the U.K. would be out of the recession by year end.
Economic releases include U.S. Housing Minutes of April 29 FOMC Meeting.
Published on Wed, May 20 2009, 12:33 GMT
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The U.S. dollar is weaker across this board this morning
Tue, May 19 2009, 12:42 GMT
by Wachovia Research Team
The U.S. dollar is weaker across this board this morning, with its biggest losses relative to the New Zealand and Australian dollars. The fall was due largely in part to a sharp decrease in risk aversion overnight as global equity indices rallied.
RBA Governor Glen Stevens made comments earlier today about the low level of Australian interest rates, indicating that further easing may not be forthcoming. These comments echoed those of the RBA's May board meeting, supporting the belief that unconventional economic measures will not be undertaken by the central bank. The Australian dollar rose to its highest levels in seven months on this news.
The British pound climbed to its strongest levels relative to the U.S. dollar this year on the back of better than expected earnings from financial services and retail companies. The positive news out of the corporate sector has prompted investors to speculate that we have seen the bottom of the British recession.
The Mexican Peso reached its strongest levels in over two weeks as reports showed industrial production exceeded market expectations. The peso benefited from the increase in global risk appetite, as investors continued to look for opportunities in the emerging markets.
Economic releases include U.S. Housing Starts, Gross Domestic Product, ABC Consumer Confidence.
Published on Tue, May 19 2009, 12:42 GMT
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Economic releases include U.S. NAHB Housing Market Index
Mon, May 18 2009, 13:07 GMT
by Wachovia Research Team
The U.S. dollar is slightly stronger this morning relative to a basket of major currencies.
Worse than expected economic numbers for the Eurozone, France and Germany led the euro lower overnight. Central bank officials commented that interest rates for the Eurozone are appropriate and dismissed concerns about deflation risk. However, these beliefs are not uniform across all board members, potentially resulting in a volatile euro as conflicting remarks may come out.
The Japanese yen has weakened this morning after comments by Vice Finance Minister Kazuyuki Sugimot stated that the volatility in the currency markets are detrimental to the Japanese economy, indicating that the yen is too strong at its current levels.
The Indian Rupee experienced its largest one day gain since 1986 on the back of Prime Minister Manmohan Singh's Congress Party winning a majority of seats in the elections. Indian equities soared, so much so that trading was halted, as investors believe that the new government will help to remove barriers to foreign investments.
Economic releases include U.S. NAHB Housing Market Index.
Published on Mon, May 18 2009, 13:07 GMT
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Economic releases include U.S. Consumer Price Index
Fri, May 15 2009, 12:03 GMT
by Wachovia Research Team
This morning, the U.S. dollar remains strong against most currencies as signs of a global economic recovery remain bleak, prompting investors to seek the safety of the greenback. The euro declined against the U.S. dollar and extended losses against the Japanese yen after a report showed that the German economy contracted the most in 13 years. The worse than expected GDP data spurred renewed concern about the depth of the global economic crisis. The British pound is also lower against the dollar, driven largely by the data out of the Euro-zone.
The New Zealand dollar is weaker this morning after retail sales for the first quarter fell twice as fast as previously estimated. The currency also declined after the IMF suggested that the Reserve Bank of New Zealand ease rates even further amid a prolonged recession and easing inflation. Struggling equity and commodity prices continue to weigh down the Canadian and Australian dollars.
The Mexican central bank will meet today and is expected to cut rates for the fifth consecutive month in an attempt to support an economy affected by waning exports and the recent swine flu outbreak. The central bank is expected to ease rates by 75 basis points to 5.25%.
Economic releases include U.S. Consumer Price Index, and U.S. Industrial Production.
Published on Fri, May 15 2009, 12:03 GMT
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The British pound was also affected by the data out of the U.S.
Thu, May 14 2009, 12:00 GMT
by Wachovia Research Team
The U.S. dollar is stronger against a basket of major currencies this morning, notably reaching its strongest level against the euro in almost one week as worse than expected U.S. retail sales curbed recent optimism over a global economic recovery. The data emphasized that U.S. consumers are still cautious about making purchases as a result of job losses, declining home values, and limited credit. The British pound was also affected by the data out of the U.S. and continues to be weighed down by the bleak economic outlook released by the Bank of England yesterday.
With the renewed wave of risk aversion in currency markets, equity and commodity prices slumped, causing the Canadian, Australian and New Zealand dollars to depreciate this morning. The Aussie and the Kiwi are trading close to one week lows, paring gains from earlier this week.
Economic releases today include U.S. Producer Price Index (MoM and YoY), U.S. Initial Jobless Claims, and U.S. Continuing Claims.
Published on Thu, May 14 2009, 12:00 GMT
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This morning, the U.S. dollar is stronger against most major currencies
Wed, May 13 2009, 12:32 GMT
by Wachovia Research Team
Overnight, the U.S. dollar reached a new four month low after an article in the Financial Times suggested that the United States may be in jeopardy of losing its AAA sovereign credit rating.
This morning, the U.S. dollar is stronger against most major currencies. Most notable is the British pound's dramatic fall against the U.S. dollar after the Bank of England's quarterly forecast which showed bleak inflation and growth projections for the British economy. Inflation is forecasted to fall to 0.5% before rising above 1% in two years and the economy is expected to shrink sharply in the months ahead before recovering at a slower pace than previously anticipated.
Currencies which currently trade in tandem with equities and commodities such as the euro, the Canadian dollar and Australian dollar depreciated against the dollar as a new wave of risk aversion entered currency markets as a consequence of the data released by the BoE. However, The Japanese yen rose against the dollar and the euro after the news and after a report which showed industrial production in the Euro-zone declined the most on record in March.
Economic releases today include U.S. Advance Retail Sales, U.S. Retail Sales Less Autos and U.S. Business Inventories.
Published on Wed, May 13 2009, 12:32 GMT
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The U.S. dollar rose on Monday against a basket of currencies
Tue, May 12 2009, 11:55 GMT
by Wachovia Research Team
The U.S. dollar rose on Monday against a basket of currencies, rebounding from its four month low as the global decline in stock markets boosted the safe-haven appeal of the greenback.
This morning, the U.S. dollar is weaker against most major currencies. The euro advanced to a seven week high against the dollar as investors bet that the U.S. trade deficit widened in March and that the ECB will refrain from lowering its over-night lending rate any further. The British pound appreciated to a four month high against the dollar after data released showed a slowdown in the pace of declining manufacturing. Further helping the pound were reports on housing prices and retail sales which spurred renewed optimism that the worst of the global recession might be over.
The Australian and New Zealand dollars are also stronger against the U.S. dollar this morning after a report from the Chinese government indicated that urban fixed asset investment rose at the fastest pace in more than two years.
Economic releases today include U.S. Trade Balance.
Published on Tue, May 12 2009, 11:55 GMT
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The dollar has recouped some of its recent losses this morning
Mon, May 11 2009, 12:14 GMT
by Wachovia Research Team
The dollar has recouped some of its recent losses this morning, as risk aversion has increased from last week. The dollar continues to show a negative correlation with the equity markets; therefore stronger US data tends to unsettle the greenback as long as it boosts the stock markets. Asian and European stock indices are largely lower at the moment, while US Equity futures are also are negative. Additionally, metals and crude prices have retreated somewhat.
After climbing the most in almost two months last week, the euro is weaker for the first time in four days. The British pound is also weaker, as are the Canadian, Australian, and New Zealand dollars. These moves are due more to the dollar strength rather than to any specific news that is affecting the individual currencies.
Mexico's central bank will announce its interest rate decision on Friday.
No major economic reports are expected to be released today.
Published on Mon, May 11 2009, 12:14 GMT
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This morning, the U.S. dollar is lower against a basket of major currencies
Fri, May 8 2009, 12:11 GMT
by Wachovia Research Team
Yesterday evening's release of the bank stress tests showed that no bank is insolvent and that the amount of capital needed by banks is lower than expected. This news was largely dollar bearish, causing higher yielding currencies to rise.
This morning, the U.S. dollar is lower against a basket of major currencies. The euro is stronger as investors buy the currency following the European Central Bank's clear stance away from quantitative easing and towards qualitative easing. The British pound is also higher this morning due to decreased risk aversion despite the Bank of England's announcement yesterday of an expanded quantitative easing program. Additionally, the Canadian dollar strengthened to its highest level since November after a better than expected unemployment report was published in Canada. This significantly positive news intensified speculation that the worst of the recession may be over. Such news has continued to cause the Japanese yen to weaken as investors increase risk by putting on the carry trade. The yen is once again weaker this morning, though only marginally from its close yesterday.
The most important data release today is the U.S. non-farm payrolls report at 8:30 EST.
Published on Fri, May 8 2009, 12:11 GMT
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The Canadian Dollar is much stronger against the U.S. dollar once again
Thu, May 7 2009, 12:25 GMT
by Wachovia Research Team
The euro rose against the U.S. dollar after the ECB's decision to ease rates by an expected 25 basis points to 1%. The market await's any possible announcements from the central bank that will indicate whether non-standard measures will be implemented to revive the Euro-zone economy. The British pound depreciated by 1% after the Bank of England kept rates unchanged at 0.5% and stated that the bank will expand its asset purchase program in an attempt to lower borrowing costs.
The Australian dollar strengthened to a new seven month high while the New Zealand dollar advanced to its strongest level in three weeks on the back of better than expected employment data which ignited optimism that the global recession is slowing.
The Canadian Dollar is much stronger against the U.S. dollar once again as attention is moving from safe-heaven currencies to commodity-exporting currencies. Treasury Secretary Geithner's re-assurance that no large financial institution is going to fail along with other comments indicating a positive outlook helped increase appetite for risk.
Economic releases today are U.S. Nonfarm Productivity, U.S. Initial Jobless Claims, and U.S. Continuing Claims.
Published on Thu, May 7 2009, 12:25 GMT
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This morning, the US dollar is stronger against the euro
Wed, May 6 2009, 12:22 GMT
by Wachovia Research Team
Yesterday, the euro gave back some of its gains from the past couple of trading sessions after a report showed that European producer prices dropped in March by the most in 22 years. Market participants took this data as further evidence that the European Central Bank will need to take more action to avert further deterioration in the Euro Zone. The bank is expected to cut rates by 25 bps when it meets on Thursday. In England, signs that the drop in the U.K. commercial property market may be slowing boosted the British pound. The drop in crude prices caused the Canadian dollar to weaken marginally.
This morning, the US dollar is stronger against the euro as there is market speculation that some of the major banks may need huge capital infusions after the Treasury's release of the stress tests. These rumors have also caused the Japanese yen to strengthen across the board as investors seek out the safe haven currency.
There are no major economic reports expected to be released today.
Published on Wed, May 6 2009, 12:22 GMT
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The Aussie is trading slightly higher on the back of this news
Tue, May 5 2009, 11:57 GMT
by Wachovia Research Team
Yesterday's massive equity rally caused safe haven currencies such as the US dollar and Japanese yen to depreciate across the board. The dollar traded near a one month low against the euro, a six month low against the Canadian dollar, a four month low against the pound, and a seven month low against the Australian dollar. Additionally, the Mexican peso rose the most in six months, allowing the currency to erase all of its losses since the swine flu outbreak began. This move came after the Mexican Health Minister stated that the swine flu outbreak had likely peaked.
Overnight, the Reserve Bank of Australia kept rates unchanged at three percent as expected, noting that the impact of previous cuts remained to be seen. The bank also cited the economic stabilization in other countries, further supporting the view that the worst of the global recession is over. The Aussie is trading slightly higher on the back of this news.
This morning, the US dollar is largely unchanged from its close yesterday. The Canadian dollar extended its previous gains as commodity prices remain strong. The Mexican peso is also stronger this morning, continuing its swine flu recovery. Crude is marginally lower and gold is marginally higher.
No major economic reports are expected to be released today though the US ISM Non-Manufacturing report and US month over month Construction numbers will be released at 10:00 AM EDT.
Published on Tue, May 5 2009, 11:57 GMT
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The dollar is slightly stronger this morning against a basket of major currencies
Mon, May 4 2009, 12:27 GMT
by Wachovia Research Team
The dollar is slightly stronger this morning against a basket of major currencies. US equity futures are also higher on the back of positive manufacturing news in Asia and the subsequent rally in the Asian stock markets. Additionally, twenty countries have confirmed cases of swine flu, making a WHO declaration of a pandemic imminent. This news does not seem to be having a broad impact on global risk taking.
Higher yielding currencies like the Australian and New Zealand dollar are stronger today as investors seek better returns. This has impacted the low yielding Japanese yen, which is weaker against the dollar for the fourth day in a row. The yen?s weakness reflects recent investor sentiment that the worst of the global recession may be over. The euro is also weaker against the dollar for the fifth straight day following the release of weak GDP data in the Euro Zone. The British pound is also lower this morning.
Australia's central bank will announce its rate decision on Tuesday with most market observers expecting the bank to keep rates steady at 3.00%. Additionally, the European Central Bank will meet on Thursday and is expected to cut rates by 25 basis points to 1.00%.
Trading volumes are expected to be low today as Britain celebrates May Day and the Japanese markets are closed for the Golden Week holiday.
There are no major economic releases expected today though US Pending Home Sales data will come out at 10:00 AM EDT.
Published on Mon, May 4 2009, 12:27 GMT
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The increased market appetite for risk also benefited the Canadian dollar
Fri, May 1 2009, 12:22 GMT
by Wachovia Research Team
The Great British Pound hit a two-week high against the JPY, EUR, and USD due to data showing the pace of deterioration in UK manufacturing slowed in April. The EUR also posted modest gains over the USD and JPY. Trading is expected to be light with many markets in Europe closed for a holiday. UK financial markets are open on Friday but will shut down on Monday for a public holiday.
The Australian dollar appreciated overnight nearing a 7 month high on the back of signs the world economy may be improving.
However appreciation was slowed by news that Australian manufacturing activity moved to record lows in April and rumors that Australia?s upcoming budget would forecast unemployment at over 8 percent.
The increased market appetite for risk also benefited the Canadian dollar. CAD moved to its strongest position in almost four months overnight. Thursday, higher oil prices, helped it break through a key technical level, while equity markets managed to remain relatively stable throughout the day. The broader sentiment of increased risk appetite kept the currency higher even as data on Thursday showed the seventh straight monthly fall in GDP.
Economic news of note today includes Consumer Confidence, Factory Orders, ISM Manufacturing, and ISM Prices Paid.
Published on Fri, May 1 2009, 12:22 GMT
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Brazil's Central Bank cut the interest rate to a record low of 10.25%
Thu, Apr 30 2009, 12:15 GMT
by Wachovia Research Team
Yesterday, the dollar weakened as stocks and oil rallied. Risk aversion subsided, causing high yielding currencies like AUD, NZD, and ZAR to advance against the dollar.
This morning, world equities are up again and the dollar is weak. The safe haven yen has plummeted in the last two days on renewed global economic confidence.
The New Zealand dollar is down the most today against the dollar after the Royal Bank of New Zealand cut interest rates to a record low 2.5%.
Brazil's Central Bank cut the interest rate to a record low of 10.25% and the real is slightly higher versus the dollar.
The Mexican peso has not fallen any further despite the swine flu pandemic alert being raised to level 5 (out of 6).
Key data out today is Personal Income, Personal Spending, Initial Jobless Claims, and Columbia's Central Bank rate decision. Columbia is expected to cut interest rates to 6% today.
Published on Thu, Apr 30 2009, 12:15 GMT
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The euro is stronger against the dollar on declining risk aversion
Wed, Apr 29 2009, 12:30 GMT
by Wachovia Research Team
Today, risk aversion has eased, equities around the world are higher, and the dollar and yen have depreciated. Global economic confidence increased on positive earning reports and economic data from Korea, China and New Zealand.
Oil prices are back over $50 per barrel and commodity linked currencies, NZD, AUD, CAD, and ZAR, are the biggest gainers against the dollar.
The euro is stronger against the dollar on declining risk aversion, positive economic data, and the speculations that the US GDP declined at a slower pace. The move might be driven by weakness of the dollar more than the euro strength as we saw the dollar decline against the majority of the currencies.
The following central banks announce rate decisions today: Royal Bank of New Zealand is expected to cut rates .5% to 2.5%, Bank of Japan is expected to keep rates on hold, and Brazil's Central Bank is expected to cut interest rates 1% to 10.25%. Data out of the US includes GDP, Personal Consumption, and the FOMC Rate Decision. The Fed is expected to keep rates on hold. However, the focus will be on the wording of the FOMC statement and the next steps the Fed might take to combat the recession.
Published on Wed, Apr 29 2009, 12:30 GMT
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Today, the swine flu is causing significant pain on financial markets
Tue, Apr 28 2009, 13:22 GMT
by Wachovia Research Team
On Monday, risk aversion due to the swine flu caused the Mexican Peso to fall over 5%, forcing the Mexican Central Bank to sell dollars. Equities fell yesterday and the Japanese yen appreciated against all currencies.
Today, the swine flu is causing significant pain on financial markets, having reportedly spread to Korea, Israel, Germany, and China. The World Health Organization raised its global alarm level to 4 signifying that the world is one step closer to a pandemic (level 6). Asian stocks hit a two week low after US regulators reportedly told Bank of America and Citigroup that they will need additional funds. European equities, US equity futures, and commodity prices are also down this morning. Safe haven currencies, yen and dollar, are up on the day while higher yielding currencies like New Zealand dollar, Australian dollar, South African rand, and Mexican peso are all weaker.
Data out today is CaseShiller Home Prices, Consumer Confidence, and the start of the two day FOMC meeting.
Published on Tue, Apr 28 2009, 13:22 GMT
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Last week, the dollar had mixed results
Mon, Apr 27 2009, 12:33 GMT
by Wachovia Research Team
Last week, the dollar had mixed results but ultimately ended the week lower against most major currencies as equities and commodities rallied late in the week.
This morning, the dollar and yen gained as stocks around the world declined on increased risk aversion. The yen reached a four week high versus the dollar. The primary contributor of today's risk aversion is the swine flu outbreak, which has caused 100 deaths and has spread from Mexico to the U.S., Canada, and Europe. The Mexican peso is down over 2.5% this morning against the dollar as fear mounts that the swine flu could deepen the recession further.
The euro and pound are lower this morning due to risk aversion and the expectation of weak earning reports out of Europe.
Data out today is the Dallas Fed Manufacturing Activity.
Published on Mon, Apr 27 2009, 12:33 GMT
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The Japanese yen rose broadly against the dollar
Fri, Apr 24 2009, 12:09 GMT
by Wachovia Research Team
The euro jumped to its highest level in a week against the dollar on Friday after a better-than-expected German business confidence survey provided hope that the euro zone economy may be turning around. The euro enjoyed broad gains following news that the German Ifo business climate index rose to 83.7 in April from 82.2 in March, beating forecasts for 82.3. The Japanese yen rose broadly against the dollar as concerns about the U.S. stress tests on banks and the fate of U.S. automakers encouraged investors to seek the safety of the yen.
Sterling fell overnight, touching a 2-week low against the euro after data showed the English economy's retraction in the first quarter was its fastest in 30 years, casting doubt on the government's economic outlook for a recovery by the end of the year. Government figures on Friday showed UK gross domestic product fell by nearly 2 percent on the quarter, the biggest fall since the third quarter of 1979.
The Malaysian ringgit led a broad Asia currency rally overnight base on optimism about the world economy. The Singapore dollar rose as Asian investors moved to cut their long U.S. dollar holdings. The South Korean won gained against the dollar on data displaying that the South Korean economy might have avoided recession in the first quarter, strengthening views the economy had hit a bottom.
Published on Fri, Apr 24 2009, 12:09 GMT
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The euro extended gains against the dollar and the yen this morning
Thu, Apr 23 2009, 12:13 GMT
by Wachovia Research Team
The euro extended gains against the dollar and the yen this morning on the back of improvements in equity markets and data indicating that the euro zone economy may be emerging from recession. Purchasing managers' surveys showed the euro zone's manufacturing and services sector had their best performance in six months. Also, caution ahead of the results of the stess tests on U.S. banks and concerns about a sizeable deterioration in the condition of some of the world's biggest economies limited any rebound in riskier assets.
The GBP gained versus the dollar as traders took advantage of yesterday?s dip to buy. However, the prospect of Britain's budget deficit increasing to a record level halted further gains. In his annual budget, finance minister Alistair Darling said Britain will run a budget deficit of over 12 percent of GDP and issue a record 220 billion pounds of gilts for the fiscal year. Darling forecasted Britain's economy would shrink 3.5 percent this year, but that it would grow by as much as 1.5 percent in 2010.
The Chinese yuan rose to a one-month high against the dollar after the Chinese central bank fixed the mid-point of the yuan outside of a range it had worked to maintain since December. It is thought that recent signs that China's economy may have bottomed may convince the People's Bank of China to let the yuan test higher levels. Chinese officials on Wednesday said its economy was on the road to recovery, even as the International Monetary Fund forecasted deeper contractions in the world economy.
Economic news of note this morning includes US Initial Jobless Claims, Existing Home Sales, and Japanese All Industry Activity Index.
Published on Thu, Apr 23 2009, 12:13 GMT
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Britain's finance minister Alistair Darling delivered his budget for the UK this morning
Wed, Apr 22 2009, 12:14 GMT
by Wachovia Research Team
Britain's finance minister Alistair Darling delivered his budget for the UK this morning. With an election due by June 2010 and the ruling Labour Party losing ground in the polls, the finance minister is thought to be stressing the positives of Britain?s situation saying that the economy should turn around by the end of the year.
The euro hit a one-month low against the dollar this morning as struggling equity shares prompted investors to dump currencies considered to be high risk. The euro slumped after an early fall in European shares underlined ongoing risk aversion. Concerns about the euro zone economy also hurt the euro. However, the euro gained against a broadly weaker sterling following weak UK economic data. The yen gained broadly this morning given mixed U.S. corporate earnings reports that have left investors uncertain about the state of the global economy and kept risk aversion high.
Germany's deputy finance minister said on Wednesday that no surprises are to be expected on foreign exchange at a meeting of top finance officials from the G7 economic powers in Washington on Friday. Reuters is reporting that the meeting is likely to discuss remarks by Chinese central bank Governor Zhou Xiaochuan in March, outlining how the dollar could eventually be replaced as the world's main reserve currency by the IMF's Special Drawing Rights.
Asian currencies are generally stronger this morning. The Indian rupee rose after four down days, as local shares gained more than 1 percent in early deals and stronger Asian currencies underpinned sentiment.
Published on Wed, Apr 22 2009, 12:14 GMT
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The dollar is generally flat against its major trading partners
Tue, Apr 21 2009, 12:22 GMT
by Wachovia Research Team
On Monday, the dollar and Japanese yen soared against all major currencies as fears resurfaced about banks. Questions around the financial sector caused the S&P 500 to plummet by 4.25% and oil prices to drop over 9.00%. Monday's big losers were commodity linked currencies like the Australian dollar, New Zealand dollar, Mexican peso, and Canadian dollar. Also, the euro declined to its lowest level in a month versus the dollar.
This morning, the dollar is generally flat against its major trading partners. Sweden cut interest rates 50bps to 0.50% and the krona strengthened against the dollar. The Reserve Bank of India cut interest rates for the sixth time in six months to 3.25% from 3.5% and trimmed projected GDP growth which led to a weaker rupee.
The Bank of Canada announces their rate decision this morning and the market factors 50% odds for a 25bp cut.
Published on Tue, Apr 21 2009, 12:22 GMT
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The euro moved to a one−month low against the dollar this morning
Mon, Apr 20 2009, 12:10 GMT
by Wachovia Research Team
The euro moved to a one-month low against the dollar this morning as a fall in equities sent investors back to the perceived security of the U.S. currency. European stocks lost nearly 2 percent of their value, weighed by caution before Bank of America earnings release. The euro was also under pressure as investors anticipated that the European Central Bank will cut rates next month on uncertainty over what kind of additional unconventional policy measures they may announce. ECB President Jean-Claude Trichet indicated on Sunday that the bank was likely to cut interest rates by 25 basis points from their current 1.25 percent. Further bearish comments came from ECB Executive Board member Lorenzo Bini Smaghi, who warned against overstating the risks of deflation in an interview with the Financial Times Deutschland this morning.
The GBP also fell this morning, pressured by the market thought that the UK government will slash its economic forecast and underline the need to increase deficit spending when it announces its annual budget later in the week. Data showing a slowing fall in prices for UK homes did little to help the pound, which pulled further away from a three-month high hit last week. The UK Treasury will anticipate a 3 to 3.5 percent slowdown in the British economy this year, much more than a forecast in November for a .75 to 1.25 percent slowdown.
The Chinese yuan fell slightly against the dollar on the spot and offshore non-deliverable forwards markets this morning. It moved lower due to a rise in the U.S. dollar Index since last Thursday. In China's most recent move to further internationalize the yuan, Premier Wen Jiabao said on Saturday that Beijing would look at expanding its currency swap agreements, which are seen as a step toward eventually making the yuan more of a global reserve asset. China's central bank has signed six swap deals since mid-December.
Economic data of note this morning includes US leading indicators.
Published on Mon, Apr 20 2009, 12:10 GMT
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The euro continued to weaken against the U.S. dollar overnight
Fri, Apr 17 2009, 12:37 GMT
by Wachovia Research Team
The euro continued to weaken against the U.S. dollar overnight, trading down to a one-month low after a major ratings agency announced that it may cut Ireland's debt ratings. The effects of this news were compounded by earlier comments from ECB President Jean-Claude Trichet which failed to quell investors' doubts about a lack of unity among ECB policymakers.
The Canadian dollar gave back some of its gains against the U.S. dollar late yesterday, coming off of a 3-month low after data released showed slowing inflation. The market is now looking to next week's meeting of the Bank of Canada for further guidance on the outlook for the Canadian dollar.
The Thai baht also fell as the government extended a state of emergency for a sixth day amid major political unrest. However, most Asian currencies are ending the week slightly higher as positive economic data out of Asia encouraged investors to move funds into emerging markets.
Economic data to be released in the U.S. today includes the University of Michigan confidence survey.
Published on Fri, Apr 17 2009, 12:37 GMT
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The KRW is stronger this morning as is the risk appetite for emerging market assets has increased
Thu, Apr 16 2009, 12:34 GMT
by Wachovia Research Team
The dollar advanced against the euro and many of its major counterparts save the Japanese yen as data released showed industrial production fell in March more than predicted. The drop spurred demand for the US dollar as a reserve currency. Also contributing to the decline in the euro was speculation that the ECB will not pursue unconventional measures to stimulate the struggling economy. Risk appetite may improve today as JP Morgan reported better than expected earnings and equity futures are up this morning. Investors will also look to today?s jobless claims and housing figures to guide risk sentiment.
UBS AG announced it would cut another 7500 jobs, driving down EUR stocks and bolstering the greenback versus the Swedish krona and Norwegian krone.
A leading economic index for Australia fell in February to its weakest level in more than two decades, pointing to a possible heavy contraction for the nation's economy, according to data released Wednesday. The Australian and New Zealand dollars both weakened against the US dollar on trade concerns after the Chinese government reported that the nation?s economy remains weak.
The KRW is stronger this morning as is the risk appetite for emerging market assets has increased. The won nears a three month high as investors have started to feel that the global recession is beginning to ease.
Economic Data out today includes Housing Starts and Initial Jobless Claims
Published on Thu, Apr 16 2009, 12:34 GMT
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The Australian and New Zealand dollars both weakened for the first time in 5 days
Wed, Apr 15 2009, 13:10 GMT
by Wachovia Research Team
The U.S. dollar benefited from an increase in risk aversion in the market after unexpectedly negative retail sales data dampened earlier optimism that the U.S. has seen the worst of the financial crisis. This morning, the dollar is stronger against most of its major trading partners except the British pound. The pound traded up to a 2-month high against the dollar as U.K. stocks moved slightly higher this morning and data released yesterday showed signs of some stabilization in the housing market. The euro weakened this morning after comments from Eurogroup chairman Jean-Claude Juncker that the euro zone would be prepared to respond quickly if a country were facing insolvency, but that he does not expect that that response will become necessary. This reluctance to signal aggressive policy changes has led many investors to doubt the ability of the ECB to combat the economic crisis.
Asian currencies also weakened overnight as the decline in U.S. retail sales worsened the outlook for Asian exporters, and also pushed investors away from emerging-market assets. This drop excluded the Japanese yen, still largely regarded as a safe haven currency in turbulent markets.
The Australian and New Zealand dollars both weakened for the first time in 5 days as declining Australian stocks compounded the effects of the market's flight to lower-yielding assets.
Economic data out today includes the Consumer Price index, industrial production numbers, and the Fed's Beige Book.
Published on Wed, Apr 15 2009, 13:10 GMT
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The loonie continued to strengthen, reaching a two month high
Tue, Apr 14 2009, 12:53 GMT
by Wachovia Research Team
Yesterday, the dollar took a beating as it lost over 1% against EUR, GBP, AUD, NZD, and CHF. The DXY, an index that indicates the general international value of the dollar, was down nearly 1.5%. Domestic equity markets were very volatile. The Dow Jones started the day nearly 1.5% lower, but ended only 26 points in the red while both the S&P and Nasdaq closed slightly positive following the initial drop.
This morning, the euro erased some of yesterday's gains on speculation that German wholesale prices declined for the eighth straight month and on ECB member comments indicating future rate cuts may be necessary beyond next month. Sterling continued to move higher overnight against both the euro and dollar as risk sentiment improved on the back of another major financial firm reporting Q1 earnings well above expectations. The aussie consolidated lower after reaching a 6 month high and the kiwi followed suit. The loonie continued to strengthen, reaching a two month high, as global stocks, crude and commodities like zinc and copper were all higher.
On the economic front, US PPI numbers and advanced retails sales came in lower than expected. Look for consumer confidence numbers later this afternoon.
Published on Tue, Apr 14 2009, 12:53 GMT
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All European and U.S. markets were closed on Friday
Mon, Apr 13 2009, 12:27 GMT
by Wachovia Research Team
All European and U.S. markets were closed on Friday. Consequently, forex markets were very quiet during the NY trading session.
The greenback struggled overnight as a report suggested that GM would soon declare bankruptcy. Its losses were relatively small though as European equity markets remain closed due to the Good Monday holiday. The Japanese yen also fell across the board after the Bank of Japan's Deputy Governor said that monetary policy was not enough to end the economic slump. These comments were announced after Japan's Prime Minister revealed a 15.4 trillion yen increase to his third stimulus plan. The yen was also hurt as risk appetite increased on speculation that future U.S. bank earnings will exceed expectations. Crude fell over 2.5% after the International Energy Agency said demand may reach the lowest level in five years as the global recession deepens.
There are no major US data releases today.
Published on Mon, Apr 13 2009, 12:27 GMT
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The U.S. dollar gained significantly yesterday
Fri, Apr 10 2009, 15:38 GMT
by Wachovia Research Team
Good morning,
The U.S. dollar gained significantly yesterday on the back of positive news from the domestic banking sector. The dollar index, a measure of the dollar's performance against its major trading partners, saw its largest weekly gain since November 2008. The euro concurrently fell for a second day in a row on concerns that the European Central Bank will continue to cut interest rates in an effort to spur economic growth.
The British pound also lost ground against the greenback on the news that a major U.K. bank plans to cut several thousand jobs.
The Chinese yuan moved slightly higher against the dollar after a report showing a higher-than-expected trade surplus. However, economists expect the yuan to remain in a fairly narrow range against the dollar in the intermediate term.
Trading is expected to be thin today due to the holiday, which may lead to increased volatility in currency markets
Economic data to be released today includes the U.S. Treasury budget for March.
Published on Fri, Apr 10 2009, 15:38 GMT
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The Australian and New Zealand dollars appreciated overnight
Thu, Apr 9 2009, 12:36 GMT
by Wachovia Research Team
The U.S. dollar and the Japanese yen weakened against most of their major trading partners as Asian equity markets strengthened overnight and investors regained their appetite for higher-yielding, non-dollar-denominated assets. That said, the British pound fell slightly against the dollar and euro, coming off Monday's two-month high against the dollar, and showing little reaction to this morning's announcement that the Bank of England is keeping interest rates unchanged.
The Australian and New Zealand dollars appreciated overnight, benefiting from an increase in risk appetite. This trend seems to have superseded the effects of economic data releases, with the Australian dollar gaining despite a report showing that unemployment unexpectedly increased by the largest margin in 18 years.
The Canadian dollar traded in a relatively narrow band and seemed to be largely unaffected by negative unemployment data released in Canada yesterday.
Economic data to be released today includes the U.S. trade balance and unemployment numbers.
Published on Thu, Apr 9 2009, 12:36 GMT
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Aussie drifted lower due to further risk aversion
Wed, Apr 8 2009, 14:13 GMT
by Wachovia Research Team