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Daily Forex Strategy Briefing

Carry−Trade Unwinding Supports Yen

Sun, May 11 2008, 18:57 GMT
by Hans Nilsson

CMS Forex

Carry-Trade Unwinding Supports Yen

• The dollar fell against most major currencies on Friday but pared some of its losses after a government report showed the US trade deficit narrowed more than forecast. The yen and Swiss franc benefited from increased risk aversion, as credit-market losses by America international Group Inc. spurred investors to sell higheryielding assets funded in yen and Swiss franc. The Canadian dollar advanced on better-than-expected employment growth and higher energy prices as crude oil crossed $125 per barrel. The Australian dollar fell on increased risk aversion as traders sold high-yielding currencies.


• The GBP/USD fell on a rising UK home repossession as well as renewed global credit concerns after American International Group Inc. said it needs to raise $12.5 billion to cover writedowns. The pair is at the lowest level since February on speculation the Bank of England will cut interest rates further as the UK economy slows. The pair is likely to test the 1.94-handle support next week. There is resistance in the 1.96- area.

Financial and Economic News and Comments

US & Canada

• The US trade deficit narrowed 5.7% to $58.21 billion in March, as imports fell the most in six years on a weak US economy, following a downwardly revised $61.71 billion deficit in February, the Commerce Department said. Imports fell 2.9% m/m to $206.7 billion. Imports are up 7.9% y/y. The drop in imports in March was primarily due to petroleum and autos. Purchases of crude oil dropped, even as the average price for the month rose to a record. Exports fell 1.7% m/m to $148.5 billion, as sales of commercial aircraft, autos and petroleum products declined. Exports are up 15.5% y/y.

• Canada’s trade surplus rose to C$5.5 billion in March from C$4.8 billion in February, the third consecutive increase and the highest level since May 2007, the Canadian national statistics agency said. Exports rose for the third consecutive month to C$40.1 billion in March from C$39.4 billion in February, while imports decreased slightly to C$34.5 billion from C$34.6 billion.


• Canada’s employment rose a more-than-forecast 19,200 in April, and the unemployment rate rose to 6.1% in April, the highest in almost a year, from 6.0% in March, Statistics Canada said.

Europe

• UK home repossession claims by mortgage lenders rose 16% y/y to the highest since the early 1990s. Home possession claims, the first step in the foreclosure process, climbed to 38,688 in Q1 2008, the Ministry of Justice said. Repossession orders issued by courts rose 17% y/y to 27,530 and were 9% higher than in Q4 2007.


• Germany’s wholesale prices rose 0.6% m/m and 6.9% y/y in April, the Federal Statistics Office said. April’s yearly inflation rate eased slightly to 6.9% from March’s 7.1%.

Asia-Pacific

• Japan’s leading economic index fell to 94.2 in March from 96.5 in February, while the diffusion component fell to 20 from 54.5, the Cabinet Office said. The coincident index fell to 111.0 in March from 113.4 in February, while the diffusion component fell to 33.3 from 70. The figures indicate the Japanese economy is slowing and may slide into a recession.

• China’s export slowed to 21.8% y/y in April from 30.6% y/y in March, the Ministry of Commerce said. The trade surplus rose to a stronger-than-expected $16.8 billion, compared with $16.7 billion a year earlier. Imports rose 26.1% y/y in April after gaining 24.6% y/y in March.
  
• Chinese producer prices rose 8.1% y/y in April, the fastest pace in more than three years, the statistics bureau said.


• The Reserve Bank of Australia raised its forecasts for inflation for 2008 and 2009 and trimmed its outlook for economic growth. The RBA said in its quarterly policy statement there are “evidence that demand has slowed, but it will take time for this to have a substantial impact on inflation.'' The RBA forecast inflation will peak at 4.5% late this year, higher than the 3.5% forecast in February and reduced its forecast for growth in June 2009 to 2.75% from the 3% predicted in February. The RBA’s board “judged that the setting of monetary policy was appropriate for the time being,” at its May 5 meeting, today’s report showed.

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Published on  Sun, May 11 2008, 19:03 GMT

Archive

• USD at Crossroad
  Published On Thu, May 15 2008, 23:07 GMT
• USD/JPY Moving Higher
  Published On Thu, May 15 2008, 00:14 GMT
• Dollar Gains as Fed Presidents See Inflation Risk
  Published On Tue, May 13 2008, 22:26 GMT
• USD Declines on Worries of Falling US Interest Rates
  Published On Mon, May 12 2008, 23:38 GMT
• Carry-Trade Unwinding Supports Yen
  Published On Sun, May 11 2008, 18:57 GMT

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