Articles from March 2005



Dollar gets a breather ahead of data release

The dollar jumped against the major currencies as traders pared the currency higher following its slide after the trade figures on Friday.
Euro remained unfazed by remarks from European Central Bank President Jean Claude Trichet putting down worries regarding inflationary pressures. Euro slipped to trade amid the 1.3360 levels as traders paced themselves ahead of the all-important January TICS report on capital flow.
Sterling fell below the 1.91 levels before settling to trade at 1.9150.
Markets shrugged off an upward revision in Japanese growth figures, expected to grow 0.1 per cent against the earlier 0.1 per cent contraction. Oil prices hovered close to $ 55 per barrel, but eased marginally after comments from Saudi Arabia to raise production. The outcome of OPEC meeting on the 15th, this month would decide the movement in oil prices.
Traders now turn focus on the capital flow data from the US and ZEW economic survey in the week ahead. Any shortfall in the trade deficit financing would trigger a fresh bout of dollar selling against the majors.

Dollar falls to a multi week low as deficits again haunt the market

The dollar fell to its multi weeks low after data on Friday showed that the trade deficit widened to its second highest level of $58.3b in January against an expected figure of $56.5b.
This led the market to focus yet again on the twin deficits of the US and punished the dollar for the same. With soaring oil prices- touching $55 per barrel, rising bond yields and this week’s slew of important data releases (January TICS capital flows, current account deficit, retail figures, industrial production and ZEW numbers from Germany) it appears that there seems to be further fall in store for the reserve currency.
Across the Pacific a revision in the Japanese GDP figures to 0.1 percent from an expected fall of 0.2 percent for the last quarter of 2004 boosted the yen against the greenback. But hopes that BoJ would maintain its surplus liquidity in the markets has led the traders to be cautious in selling the dollars beyond mid 103 levels.
The hawkish comments from the ECB members, due to surplus liquidity, also looks to support the single currency.

Dollar wobbles again and remains on edge

The dollar was dealt a blow on further rhetoric; this time from Japanese Prime Minister raising speculation about Asian Central Banks diversifying their dollar reserves.
The dollar remained under pressure as oil and commodity prices remained at near highs. Oil prices eased off marginally to 53.35 after a bout of increased speculation the earlier week. The outcome of the OPEC meeting scheduled next week to decide on the price band should give some reprieve to escalating oil prices.
Euro at a two month high traded in a range just above the 1.3420, topping at 1.3458.
Greenspan’s statements about not being ‘overly’ worried about the trade figures helped the US currency recover off lows.
Higher than expected January’s Industrial production figures at 3.1 from Germany refrained traders from paring the single lower.
Cable was dealt a blow as trade figures at –5.2 billion and Industrial Production figures at –0.2 per cent were way below market expectations, dipping to the days low of 1.9205.
Yen continued to stay afloat above the critical 103.80 resistances after rallying initially to 103.66 as traders rushed to sell at lower levels.
The markets were confined to range bound trades as traders remained cautious ahead of the all important US trade figures and Greenspan’s speech today.

Dollar edgy ahead trade deficit data and swelling oil prices

Oil prices escalated to a high of $55.65/barrel (April Futures) making the dollar nervous about rising inflation and increasing fiscal deficit, facilitating its fall to a two month low against euro at 1.341 overnight.
The fate will be decided after the OPEC meeting, next Wednesday on production policy. Euro touched a high of 1.3455 in the morning session in Tokyo, marching towards the next level at 1.3475.
The market is clearly focused on Friday’s trade data, having shown little reaction to the US Federal Reserve Board’s latest economic report via its “Beige Book”, which emphasized on rising input costs and escalating inflation.
The yen though strong, bounced back repeatedly from the crucial support at 103.8 inviting huge selling at that level.
Australia’s unemployment rate remained at a seasonally adjusted 5.1% in February below the market consensus rate of 5.2% pushing it to the high of 0.7983 this morning, unable to break the crucial 0.80.
Pound is waiting at the sidelines and has not gained much compared to its European counterpart as markets await decision of the BoE’s Monetary Policy Committee today on any further interest rate hike, expected to be kept stable at 4.75% unless any inflationary threats are seen.

Soaring oil prices and deficit worries hound the dollar again

A series of factors sent the dollar tumbling vis-à-vis the international majors as the greenback plummeted to a 13-month low against the Australian dollar, 2-month bottom versus the euro and 2 and a half-month floor against the sterling.
Crude oil surged to as high as $54.82 per barrel in the Japanese session on increasing demand concerns to the detriment of limited supplies. Further pressurizing the dollar were Fed Governor Bernanke’s comments on one hand, which indicated reducing possibility of accelerated interest rate hikes while a top ECB official remarked that medium-term inflationary pressures have built up due to excess liquidity thus suggesting that ECB maybe leaning towards raising interest rates.
The single European currency broke past the resistance of 1.3310 to soar as high as 1.3358 while cable skyrocketed above the 1.93 mark to touch a peak of 1.9328.
Notwithstanding the pressure of rising oil prices on the Japanese economy, the yen briefly touched above the 104.50 mark to trade around the 104.65 mark in the early Japanese session. Persistent purchases by foreigners continued for the 19th consecutive week sending Nikkei surging towards the 12,000 mark.
Currency markets would be eagerly looking forward to the release of US trade deficit figures for January due to be released on Friday which is expected to widen to $56.5 billion compared to previous month’s figure of $56.4 billion.
In a report released by the Bank of International Standards, the Asian Central Banks were seen cutting their reserves held in dollar from 81% in 2001 to 67% in September 2004.

Sterling rises as UK retail spending holds up

Sterling improved in European morning trade on Tuesday as a slowdown in high street sales was less dramatic than feared.
The British Retail Consortium said like-for-like UK retail sales fell 0.3 per cent in February. Although this was sharply down on the +0.5 per cent recorded in January, it was better than many of the figures bandied about in the weekend press.
This allowed the pound to strengthen 0.7c to $1.921 against a soft US dollar, 0.1p to £0.6893 against the euro and Y0.7 to Y201.94 against the yen.
The New Zealand dollar was once near the top of the leaderboard, rising a further 0.3c to a fresh 22-year high of $0.7378 against its US namesake, as carry trade investors continued to buy the kiwi to benefit from high interest rates.
The market is split almost 50-50 as to whether the Reserve Bank of New Zealand will raise its main interest rate, already the highest in the developed world at 6.5 per cent, by a further 25 basis points on Thursday.
The internal debate at National Australia Bank is a microcosm of the market’s uncertainty over Thursday’s rate call. Citing data showing a 4.8 per cent fall in building work in the fourth quarter, Tim Fox, head of market strategy, said: “Our NZ economists now see only a 50 per cent chance of a rate rise. However, with inflationary pressures building they still believe that the RBNZ will eventually be forced to move, the question is whether that will be in March or April.”
The Australian dollar, another high-yielder, rose 0.5c to a one-year high of $0.7950 against the greenback.
The US dollar was weak across the board, slipping to $1.3254 against the euro and Y105.02 versus the yen, with some commentators citing data earlier in the week from the Bank for International Settlements suggesting Asian central banks are continuing to diversify out of the dollar, as a cause.
The yen was also soft, slipping to Y139.22 to the euro, as nominal January household spending in Japan rose just 0.5 per cent year-on-year, below expectations for a 2.1 per cent increase.

Dollar weakens on payroll data

The dollar’s movement on Friday exhibited a conundrum as a much stronger than expected payrolls failed to inspire the reserve currency and instead led to a sharp sell off in the USD with the dollar closing the week at mid $1.32 levels against the euro.
The payrolls figure came out at 262k against a forecasted 220k but still the floor beneath the greenback’s feet slipped as the market’s whisper numbers had risen to 300k and thus the traders were disappointed with what they got. Both the services and the manufacturing sectors added sufficient jobs to give support to the view that the Fed will continue to raise rates to 3 percent by late summer this year.
Also depressing the dollar further was the University of Michigan consumer sentiment data, which came below consensus at 94.1 versus 94.5 expected, while the unemployment rate rose to 5.4 percent from the expected 5.2 percent.
In other news treasury officials stated that there was no indication yet that foreign central banks were diversifying away from US assets in a major way while Chinese premier also commented that China was taking necessary steps to reform the exchange rate mechanism of renminbi.

Contradictory signals in Australia

There was evidence of a slowdown in the Australian economy on Thursday with the release of weaker than expected retail sales figures for January and data showing that rises in house prices weakened significantly towards the end of last year.
Although retail sales rebounded after three months of declines, increasing 0.6 per cent from December, they were weaker than market predictions of a 0.8 per cent rise, mainly because of a fall in food sales.
The data came as John Howard, prime minister, suggested there was no need for further hikes in interest rates, a day after publication of poor fourth quarter growth figures and the country’s first tightening in monetary policy in over a year.
The increase in official rates, by 25 basis points to 5.5 per cent, was controversial given the economic slowdown, yet many economists expect the Reserve Bank to move again in the coming months. For some time, the bank has been warning of wages growth and mounting inflationary pressures.
House prices rose 0.6 per cent in the December quarter, partly reversing a 0.7 per cent decline in the previous three months. But they increased just 2.7 per cent year-on-year, down from 8 per cent growth in the third quarter and 13 per cent in the second.
“Inflation is low, there is no sign that wages are breaking out and there are signs that growth in the economy has moderated,” said Mr Howard, who was re-elected for a fourth term in October after campaigning heavily on his record on the economy. “So if you put all of those things together, there’s a respectable argument that there should not be another rise for a while.”
The prime minister, who when he came into office in 1996 cut back Australia’s immigration intake and has taken a firm line on illegal migrants, also backed proposals for an increase in skilled migration to help ease labour market shortages.
At just over 5 per cent, unemployment is at a 30-year low, with many businesses complaining they are being constrained by the skill shortages. The government is believed to be considering a one-off increase of some 20,000 places in its annual migration programme, at present set at about 120,000 a year.
“We have an economic need at the moment for more skilled people,” Mr Howard said. “If part of the solution to that problem is to bring in more skilled migrants, then I’m in favour of it.”

Greenspan fails to support the dollar

The single currency retreated off its lows of 1.3093 as Fed chairman gave a brief commentary on the growing US economy, but more loud was his concern regarding the US fiscal deficit which disappointed the dollar bulls.
Surging oil prices (around $53) as a result of refinery problems in Texas also pressured the greenback slightly and it gave up some of the gains notched in the European session after the release of disappointing Euro zone Q4 GDP at a mere 0.2% and a flat UK manufacturing PMI figures for February at 51.8.
Dollar was not much impacted by a report showing US companies’ plans to layoff 17% more workforce in February (compared to January) due to rising M&A; activities.
But it did cause some doubts in traders’ mind as it contrasts sharply with the weekly jobless claims showing a steady improvement in February thus giving hopes of a formidable payrolls report. Any nasty surprises on the downside for the payroll on Friday (below 200K) will get the knives out for dollar.
Today’s data includes the ISM services figures expected to be strong that may give some hopes for tomorrow’s payrolls, needed for giving an upward fillip to the dollar.
Technically, Euro meanders between 1.3080 – 1.3150 waiting for a trigger to cart it upwards with 1.3360 capping any major breakout. Sterling has major support at 1.9050 (a 50% Fib of the Jan-Feb rally in the dollar) with resistance at 1.9260.

Falling Australian dollar rescues the greenback

The greenback edged up against the international majors in early Tokyo trade as the Australian dollar tumbled on disappointing data release, which indicated a large economic slowdown in Q4 growth.
The Aussie plunged from 0.795 levels to early 0.78 as the GDP grew a meager 0.1% vis-à-vis the expected 0.5% gain, despite a widely expected quarter percentage rate hike by the Reserve Bank of Australia to 5.5%.
The single European currency declined below the 1.32 mark on emerging concerns in the eurozone – PMI manufacturing survey was flat at 51.9, Germany’s jobless claims soared by 161k to 4.88 million to touch a record high while the adjusted unemployment rate surged to a 7-year peak of 11.7% and European Commission’s indicator of economic sentiment plummeted to a 12-month low.
Currency markets completely ignored the slowdown in US manufacturing activity in February as it shifted focus to gloomy fundamentals emanating from Europe that reinforced anticipation for steady eurozone interest rates.
The Japanese yen continued to hover around the 104.5 mark as strong household spending figures provided adequate boost to prevent any decline. Following euro’s fall, Sterling dropped below the 1.92 mark to trade around the mid 1.91s.