* The dollar and yen fell against most major currencies on Tuesday as US stocks rose. Treasury Secretary Timothy Geithner said the government will step up efforts to fight the recession and will apply lessons learned from Japan’s credit crunch. The euro rose above $1.30 and sterling recovered most of yesterday’s losses as the Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months, easing demand for dollar funding. The Canadian dollar advanced on rising crude oil prices and risk appetite.

* The AUD/USD rose modestly after the Reserve Bank of Australia cut its benchmark interest rate 100 basis points to 3.25%, the lowest since 1964. The pair recovered from a 3-day decline after the Australian government said it will spend A$42 billion to counter the impact of the global economic slowdown. The Australian dollar is trying to build a bottom following nearly 35% depreciation since the summer. Strong support exists in the 0.60-area while resistance from the short-term downtrend is in the 0.65-area. If this resistance is broken, the AUD/USD is likely to rally to the 0.70-area.


Financial and Economic News and Comments

US & Canada

* US pending home sales posted a surprise gain in December on foreclosure-driven declines in prices and lower mortgage rates. The NAR US pending home sales index unexpectedly increased 6.3% m/m to 87.7, the first rise since August, after November’s upwardly revised 3.7% m/m decline, the National Association of Realtors reported. Pending home sales in December rose 6.0% y/y.


*The US home-vacancy rate in Q4 2008 increased one tenth of a percentage point to 2.9%, matching a record set in Q1 2008, the Commerce Department said. Meanwhile, the US homeownership rate fell to 67.5% in Q4 from 67.9% in Q3. Homeownership peaked at 69.2% in 2004.


* The consumer-price inflation rate in developed economies increased at the slowest annual rate in at least 37 years in December, decelerating to 1.5% y/y from November’s 2.2% y/y, the Organisation for Economic Co-operation and Development (OECD) said.

* Eurozone producer prices declined for a fifth consecutive month, falling a more-than-expected 1.3% m/m in December after a record downwardly revised 2.0% m/m drop in November, PPI data from Eurostat showed. The producer-price inflation rate decelerated to 1.8% y/y in December, the slowest in 16 months, from 3.3% y/y in November. The declining PPI supports an argument for further European Central Bank interest-rate cuts. Still, the ECB is expected to leave its benchmark rate unchanged at 2.00% at its meeting Thursday, but the ECB will likely go for a 50-basis-point cut in March.


* * German retail sales unexpectedly declined an inflation-adjusted 0.2% m/m in December, after a downwardly revised 0.1% m/m decline in November, the Federal Statistical Office reported. Retail sales unexpectedly slipped 0.3% y/y in real terms after November’s 3.2% y/y fall. Separately, the German retail industry association HDE forecast that retail sales would decline an inflation-adjusted 1.0% to 2.0% in 2009.

* UK building activity contracted at a slower rate but remained near a record low in January, with the UK construction PMI unexpectedly increasing to 34.5 from December’s 29.3, according to the Chartered Institute of Purchasing and Supply.


* * The Reserve Bank of Australia cut its benchmark interest rate 100 basis points to 3.25%, as forecast, the lowest level in 45 years. RBA Governor Glenn Stevens said the combination of last year’s financial turmoil, a severe global downturn and substantial falls in commodity prices has had a significant dampening effect on confidence, and therefore on prospects for growth in demand. Inflation has begun to moderate and, given recent developments, it is likely to continue to decline, adding that sizable reduction in the cash rate was appropriate. The Australian government announced it will spend a further A$42 billion ($27 billion) to stave off a recession.

* Australia’s trade surplus in December narrowed more than expected to A$589 million ($375 million) from November’s downwardly revised A$979 million, the Bureau of Statistics said.

* Japan’s labor cash earnings declined for a second month in December, falling 1.4 y/y, after November’s 0.7% y/y decline, the Ministry of Health, Labour and Welfare said. Overtime compensation fell 11.2% y/y, the most since 1992.

* South Korea’s economy will contract 4.0% in 2009 and rebound in 2010, the International Monetary Fund forecast.