Monday in Asia, the Australian and New Zealand dollars climbed against their key counterparts as stock markets across the Asia-Pacific region traded higher. Investors look forward to the release of U.S. Treasury Secretary Timothy Geithner's plan to remove toxic bank debts, boosting demand for higher-yielding currencies.
In an interview with the Wall Street Journal yesterday, Geithner said the only way to remove troubled assets clogging banks' balance sheets -- which lie at the heart of the financial crisis -- is to work with the private sector, even at a time when Wall Street moneymakers are being vilified by the public and politicians.
Mr. Geithner's three-pronged program, which is likely to be unveiled today, envisions the creation of a series of public-private investments to soak up $500 billion, and maybe as much as $1 trillion, in troubled loans and securities at the heart of the financial crisis. To encourage investors to buy those assets, the U.S. government will offer lucrative subsidies and shoulder much of the risk.
A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.
Officials believe this new power will save taxpayers money and avoid the type of controversy that erupted last week when insurance giant American International Group paid employees of its troubled financial products unit $165 million in bonuses even though the company had received more than $170 billion in support from the federal government.
The effort is part of Mr. Geithner's broader plan to stabilize the financial system and builds on earlier programs to pump capital into banks, restart consumer and small-business lending, and help some homeowners pay their mortgages. Many economists argue that financial firms need to purge troubled loans and securities clogging their balance sheets if they are to regain the confidence to resume lending.
The stock markets also gained on expectations that the second largest economy in the world, Japan, will unveil a new stimulus package to revive the economy.
Japanese Finance Minister Kaoru Yosano said yesterday that the economy is likely to continue its sharp contraction and will require about 20 trillion yen or $210 billion in new stimulus spending.
Japan's Finance Minister said a massive government stimulus package would be necessary to prevent the current fiscal quarter from repeating the 12.1 percent economic contraction seen in the fourth quarter of 2008.
Yosano said the economy was expected to have contracted at the same 12.1 percent full-year rate in Q1 as it did in Q3.
As a result, the government will revise its estimate of zero growth for 2009, made in December. An International Monetary Fund estimate of a 5.8 percent contraction may be close, Yosano said.
The aussie also climbed to a 2 1/2-month high against the Canadian dollar, 10-week high versus the US dollar and a 10-day high against the European currency. Meanwhile, the kiwi reached a new multi-month high against the greenback, a 6-week high versus the euro.
Against the US dollar, the Australian currency reached a 10-week high of 0.6997 during early deals on Monday. If the pair gains further, 0.714 is seen as the next target level. The aussie-dollar pair closed Friday's New York trading at 0.6860.
Since March 10th, the Australian currency has been retaining its uptrend against the greenback and the pair has gained around 9.6% thus far.
The Australian dollar that closed Friday's North American session at 1.9798 against the European currency climbed to 1.9585 at 3:05 am ET Monday. This set a 10-day high for the aussie. The next upside target level for the Australian currency is seen around 1.949.
Against the Japanese yen, the Australian dollar edged higher to 67.34 during Monday's early deals. This set the highest mark for the pair since January 7, 2009. The aussie-yen pair is currently quoted at 67.25, with 68.0 seen as the next target level. The pair closed Friday's New York deals at 65.70.
The aussie-yen pair that plunged to a new multi-month low of 55.59 on February 9th has appreciated around 17.4% since then.
A downbeat business sentiment survey released by the Japanese government today led to the weakening of the yen.
Sentiment among leaders of large Japanese companies worsened in the first three months of 2009 compared to the final three months of 2008. Japan's Finance Ministry and Cabinet Office said today that the large company business sentiment index came in at -51.3 in the first quarter of 2009, compared to the -35.7 reading in the fourth quarter.
During today's early deals, the Australian dollar rose to a 2 1/2- month high of 0.8629 against its Canadian counterpart. This may be compared to Friday's closing value of 0.8513. On the upside, 0.876 is seen as the next target level for the aussie.
The aussie-loonie pair that declined to a new multi-month low of 0.7731 on February 9th strengthened thereafter. Since then, the pair has gained around 10.2%.
The New Zealand dollar also showed strength against its major counterparts during early deals on Monday.
The New Zealand dollar spiked to new multi-month highs of 54.62 against the Japanese yen and 0.5673 against the greenback during Monday's early trading. This may be compared to Friday's closing values of 53.48 and 0.5583, respectively. On the upside, the NZ dollar may likely find resistance near the 56.3 level against the Japanese unit and 0.589 level against the greenback.
The New Zealand currency has been advancing against the dollar and yen since March 10th and the kiwi has gained around 11% versus the Japanese yen and 13% against the US dollar thus far.
The kiwi rallied against the euro during today's early deals, climbing to a 6-week high of 2.4156. This may be compared to Friday's closing value of 2.4339. If the NZ dollar climbs further, 2.399 is seen as the next likely target level.
The New Zealand dollar largely bounced between 1.2362 and 1.2315 versus the Australian currency during Monday's early deals. The aussie-kiwi pair is currently trading at 1.2354, compared to last week's closing value of 1.2301.
In the European session, Eurostat is slated to publish Eurozone trade balance data for January at 6.00 am ET. Economists forecast the trade deficit to widen to a seasonally unadjusted EUR 9 billion from a EUR 0.7 billion shortfall recorded in the previous month. The seasonally adjusted trade deficit is expected to be at EUR 1.9 billion, expanding from EUR 0.3 billion deficit in December.
At the same time, Eurostat will unveil construction output data for January.
Across the Atlantic, the National Association of Realtors is scheduled to release its report on existing home sales for February at 10 AM ET. Economists estimate existing home sales of 4.45 million for the month.
Market players are also looking ahead to Canada's leading indicators data for February, which is slated for release at 8:30 am Eastern Time today.
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