Yen

The dollar was unable to sustain gains above the 100 level against the yen on Wednesday and weakened to test levels below 99.0 before consolidating around 99.30 as the yen weakened against the Euro.

Capital flows will be watched very closely over the next 48 hours due to the possibility of last-minute capital repatriation ahead of Japan’s fiscal year-end. Strong repatriation flows would provide important near-term yen support, especially if risk aversion increases again.

The Japanese trade account reverted to a JPY970bn surplus for February after a seasonal deficit in January. Although export shipments to the US fell again, there were strong gains to Europe and Asia. These gains will ease fears over yen strength against the dollar and lessen pressure for Finance Ministry intervention to restrain the Japanese currency.

Sterling

Sterling pushed to highs above 2.01 against the dollar on Wednesday and challenged resistance levels below 0.78 against the Euro, but then weakened sharply.

The Bank of England warned over the inflation outlook in testimony to the Treasury Select Committee with Governor King stating that the headline inflation rate was likely to increase to around 3.0%. The MPC members were also generally cautious over growth prospects and the bank effectively stated that it was more willing to consider a cut in interest rates as the credit tightening took effect.

The Bank of England members also stated that it was expecting a further decline in Sterling due to current account deficit concerns and had included a weaker currency in their forecasts. Despite the inflation concerns, the comments on growth and the exchange rate will tend to undermine near-term confidence in the currency.

Following the Bank of England comments, the UK currency weakened to near-record lows against the Euro at 0.7885 and retreated against the dollar.

Swiss Franc

The dollar was unable to hold above 1.01 against the US currency on Wednesday and dipped to lows near 0.9900 as the US currency was subjected to renewed selling pressure. The Euro also failed to hold gains above the 1.5750 level against the franc and settled just below the 1.57 level.

The persistent volatility in asset prices is continuing to discourage carry trades and this is also undermining confidence in high-yield currencies which is also providing underlying franc support.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar has taken advantage of a renewed increase in commodity prices and a downturn in the US dollar over the past 24 hours. The Australian dollar pushed to a high near 0.9250 against the US currency, although it was unable to sustain the gains and weakened back to 0.9185 as risk aversion edged higher again.

Commodity prices were generally firmer which provided support to the currency, but there was still some unease over overall risk conditions. Although the domestic influences remained limited, there will be a close focus overnight on comments from Reserve Bank Governor Stevens. Any stronger suggestion that interest rates have peaked would tend to undermine the local currency.

Read Other

Recent Articles by Darrell Jobman