Currency Report
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The big focus for the US dollar is in carry trades. It is so much so that US data was ignored by investors. This helped to pust the Euro/USD to a high of 1.3667. Very little is known as to how far these upward moves may extend, however, the carry moves are the focus as the U.S. economic data does little to sway the Federal Reserve's interest rate policy. Higher inflation shown from this data prompts them to increase rates while the pressures from a sagging housing market stays their hand. Retail sales were higher, however the underlying condition of the increase in oil prices drove gas station receipts up. The Empire State manufacturing survey also showed some improvement, as the manufacturing sector struggles to improve. Treasury International Capital flow data reported softer demand for securities, down from $98.8 billion to $58.1 billion, due to the February stock market sell-off and concerns about the subprime sector. It may not have been as bad, however, as the UK, Japan and China are big buyers of the securities. The NAHB housing report also dropped from 36 to 33, increasing concerns about the housing industry. Consumer prices, housing starts, building permits and industrial production will be released in the coming week. They are expected to be conflicting with consumer prices accelerating due to increasing oil, while housing and industrial production are expected to decrease. The reports should keep the reserve steady on the interest rates.
The euro continues to climb higher, boosted by strong economic data and from positive comments from the ECB. The markets demand is focused on the countries that favor an interest rate hike. Overnight, consumer prices were up by .7%, more than the market expected, and the French business sentiment climbed 2 points to 112. ECB members Weber and Quaden were optimistic about the condition of the economy, prompting one of the members to increase the GDP prediction for Germany and another to state that an interest rate is very likely. The German and ZEW survey are expected to come soon. The consensus forecast is expected to increase due to upside surprises in growth and a rally in the stock market. Realistically, due to the strong Euro and the increase in interest rates, the results may come in to the downside.
The Swiss National Bank President Roth signalled that he would be increasing rates this year. With a low unemployment rate and great exports due to its weak currency, he indicated that the Swiss National Bank must be vigilant. The Franc has not moved much after this due to pressure from the carry trades in the EUR/CHF though as mentioned before, further gains could be limited.
The Pound has been up for the 5th day consistently due to the stronger than expected rise in consumer prices. The pound is expected to be one of the more important currencies as investors wait for the minutes of the monetary policy meeting which they expect to have a more hawkish voting record. This may call for an interest rate increase coming in May or June. The growth of consumer prices as a core and headline number increased faster than was expected in March. Housing market reports show similar increases in home prices, and may also show an increase in consumer prices as well. All that is needed to see the pound get to 2.00 against the US. Dollar is for the employment market to become hotter and for an increase in consumer spending late in this week.
Stronger Japanese production has done little to strengthen the yen, extending to new lows against the Euro after the G7 meeting. Currently, the Japanese are enjoying the benefits of a weak yen (more exports) and may not take any action to strengthen it. Positive economic data and increased earnings for exporters such as Toyota may be on the way.
Even thought the Canadian and New Zealand Dollars were up, there appears to be a turn coming up in the Australian Dollar. Oil prices are down while gold is up. The Canadian Dollar is finally starting to show improvement comensurate with the good performance of its underlying economy. New Zealand Dollars are being accumulated ahead of the Consumer Price Index report, which is expected to be positive after the dip in the fourth quarter. This will raise speculation whether the New Zealand central bank will raise interest rates. The rally in the Australian dollar is simply becoming exhausted. Movement in this currency is dependent on the demand for the carry trades.
The big focus for the US dollar is in carry trades. It is so much so that US data was ignored by investors. This helped to pust the Euro/USD to a high of 1.3667. Very little is known as to how far these upward moves may extend, however, the carry moves are the focus as the U.S. economic data does little to sway the Federal Reserve's interest rate policy. Higher inflation shown from this data prompts them to increase rates while the pressures from a sagging housing market stays their hand. Retail sales were higher, however the underlying condition of the increase in oil prices drove gas station receipts up. The Empire State manufacturing survey also showed some improvement, as the manufacturing sector struggles to improve. Treasury International Capital flow data reported softer demand for securities, down from $98.8 billion to $58.1 billion, due to the February stock market sell-off and concerns about the subprime sector. It may not have been as bad, however, as the UK, Japan and China are big buyers of the securities. The NAHB housing report also dropped from 36 to 33, increasing concerns about the housing industry. Consumer prices, housing starts, building permits and industrial production will be released in the coming week. They are expected to be conflicting with consumer prices accelerating due to increasing oil, while housing and industrial production are expected to decrease. The reports should keep the reserve steady on the interest rates.
The euro continues to climb higher, boosted by strong economic data and from positive comments from the ECB. The markets demand is focused on the countries that favor an interest rate hike. Overnight, consumer prices were up by .7%, more than the market expected, and the French business sentiment climbed 2 points to 112. ECB members Weber and Quaden were optimistic about the condition of the economy, prompting one of the members to increase the GDP prediction for Germany and another to state that an interest rate is very likely. The German and ZEW survey are expected to come soon. The consensus forecast is expected to increase due to upside surprises in growth and a rally in the stock market. Realistically, due to the strong Euro and the increase in interest rates, the results may come in to the downside.
The Swiss National Bank President Roth signalled that he would be increasing rates this year. With a low unemployment rate and great exports due to its weak currency, he indicated that the Swiss National Bank must be vigilant. The Franc has not moved much after this due to pressure from the carry trades in the EUR/CHF though as mentioned before, further gains could be limited.
The Pound has been up for the 5th day consistently due to the stronger than expected rise in consumer prices. The pound is expected to be one of the more important currencies as investors wait for the minutes of the monetary policy meeting which they expect to have a more hawkish voting record. This may call for an interest rate increase coming in May or June. The growth of consumer prices as a core and headline number increased faster than was expected in March. Housing market reports show similar increases in home prices, and may also show an increase in consumer prices as well. All that is needed to see the pound get to 2.00 against the US. Dollar is for the employment market to become hotter and for an increase in consumer spending late in this week.
Stronger Japanese production has done little to strengthen the yen, extending to new lows against the Euro after the G7 meeting. Currently, the Japanese are enjoying the benefits of a weak yen (more exports) and may not take any action to strengthen it. Positive economic data and increased earnings for exporters such as Toyota may be on the way.
Even thought the Canadian and New Zealand Dollars were up, there appears to be a turn coming up in the Australian Dollar. Oil prices are down while gold is up. The Canadian Dollar is finally starting to show improvement comensurate with the good performance of its underlying economy. New Zealand Dollars are being accumulated ahead of the Consumer Price Index report, which is expected to be positive after the dip in the fourth quarter. This will raise speculation whether the New Zealand central bank will raise interest rates. The rally in the Australian dollar is simply becoming exhausted. Movement in this currency is dependent on the demand for the carry trades.
posted by Ian Bellamy at
4:58 PM
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