The US dollar traded weaker against a basket of currencies after a report showed the number of US workers filing new jobless claims last week rose to its highest level in 26 years. On a 4 week average which smoothes out week to week volatility, the reading still remains at the highest level since 1982. In other economic news, the US trade deficit widened unexpectedly increased as imports from China rose to a new high and the volume of oil imports increased as a result of a record drop in oil prices. Investors are still pricing in a 25-50 basis point cut December 16th.
The euro strengthened to 6 week highs against the greenback after comments from an ECB Board member stated the central bank did not have a lot of room for maneuver on rates after its cut last week.
The British pound strengthened against the dollar but continues to trade at record lows against a basket of currencies after a weak reading of UK factory orders. The report showed marginal improvement but the trend is still a strong decline in the manufacturing sector.
The Japanese yen rose to 7 week highs against the dollar on the heels of record jobless claims were reported in the US. Investors are predicting the world’s second largest economy is likely to contract at a much faster pace in the 4th quarter and the global recession hits exports and production. Furthermore, market participants see a 40% chance Japan will return to a 0% interest rate environment.
The Canadian dollar rose sharply against the greenback as oil rose almost 5% after the International Energy Agency predicted oil demand would rise next year and expectation of output cuts. Gold also gained more than 3%. In economic news, the country’s trade surplus narrowed as imports outpaced exports.
Both the Australian dollar and the New Zealand dollar continued to strengthen against the US dollar on the back of a weak US jobs report. In contrast, Australia’s job losses were better than expected further helping the Aussie dollar. In New Zealand, the PMI reading fell to its lowest level in 6 years while the Real Estate Institute of NZ reported that housing sales were ½ the level of a year ago implying rates may be cut again. The Royal Bank of Australia recently cut rates 1% to 4.25% and the New Zealand central bank recently slashed rates 1.50% to 5%.
The Mexican peso continues to strengthen against the US dollar as commodity prices rise, and hopes of a US auto industry bailout.
