The US $ has under-performed in the O/N trading session. Currently it is down against 14 of the 16 most actively traded currencies, in a ‘whippy’ trading session. Trading desks this morning will be fully staffed after MLK day and the markets wait for the US Empire State index. The whisper number is lower (18 vs.23), expect the ‘greenback’ to remain under short term pressure.
The US $ currently is trading lower against the EUR +0.35%, GBP +0.04%, CHF -0.46% and JPY -0.12%. The commodity currencies are higher with AUD +0.14% and CAD -0.29%. Traders expect the BOC to remain on hold this morning (4.25%). Governor Dodge has indicated his concern with the recent ‘softer’ export data to the US (implying that they are not close to ‘easing rates’ some time soon). The recent slide of the ‘loonie’ has had the same effect of ‘loosening’ Canadian monetary conditions. The MPR (Monetary Policy Report) is released this Thurs., traders will wait till then to make longer term bets.
Crude is higher ($53.00 up 1c), as traders speculate that prices have fallen ‘too far’ after last weeks EIA report showed surging US fuel inventories. OPEC will have to follow through on cutting production to retain any market credibility. Winter storms up the east coast of North America will further support oil in the short term. Gold eases ($625) O/N, as traders speculate that the ‘yellow metal’ will under-perform due to the decline in global commodity prices.
The Nikkei closed at 17,202 down -7. The DAX index in Europe was down -5 points at 6,726; the FTSE (UK) currently is 6,253, -10 points. The early call for the open of key US indices is to be lower. Yields of the US 10-year note ‘backed up’ 3bps on Friday (4.77%), as the US core retail sales number indicated no short term easing will be seen from the FED.
EUR climbed against the US $ (1.2974) as the German index of investor confidence rose to the highest level in six months (-3.6 vs. -19 for Dec.). This number will provide a ‘positive catalyst’ for the ECB to hike O/N rates again (3.50%). The currency futures indicate traders expect the ECB to increase borrowing costs two more times this year to 4%.
CBL rises (1.9660) after a government report today showed consumer prices quickens at the fastest pace in a decade (+3% y/y). This raises the probability that the BOE will increase interest rates further (5.25%). Also, UK house prices this morning fell to a four month low in Dec. (the BOE rate hikes are now beginning to affect the property market), alternatively this could stall Sterling’s recent rise.
Bank of Thailand deliberately created `uncertainty’ in the foreign exchange market to drive out foreign speculators, when it imposed curbs on investment, Governor Watanagase said yesterday in Bangkok. They have successfully managed to create uncertainty and volatility and investors are questioning if they are capable of managing their economy (THB 35.99). I assume this is a ploy to further weaken their currency.
The Yuan closed at its highest level 7.7900 up +0.02% vs. the US $. Its appreciation will help balance ‘global imbalances’ the commerce ministry said on its Web site earlier this morning. Yesterday the ministry said the currency will rise as much as 5% this year. The Chinese Government is keeping up their end of the bargain by talking up the value of the Yuan (its also part of the Govt. effort to be more transparent for the market).
In Japan there is a big debate whether or not the BOJ should raise rates this week (0.25%). This is a rather unusual scenario. Japan MOF's Omi is playing down need for a BOJ vote delay. Futures traders are pricing in a 78% probability of a rate hike.
On Tap:
8:30 am USD Empire State Business Conditions Index 18.0 vs. 23.1
9:00 am CAD Interest Rate Statement 4.25% vs. 4.25%
4:45 pm NZD CPI q/q -0.1% vs. 0.7%
4:45 pm NZD FPI m/m 0.1%
6:50 pm JPY Trade Balance (p) 900b vs.756b
JIM
