• Sterling climbs as investors await the March Industrial output
• Kiwi sinks after confirmation from RBNZ Governor Wheeler on its currency sell-off
• CAD little changed with signs of a cooling housing market
USD –The US dollar weakened against most of its majors amidst the rise of US stocks showing the DJIA climbed above 15,000 for the first time and the S&P 500 Index rose 0.3% yesterday. In the US bond market, yields rose modestly at 1-2bp across the curve after a slightly weak auction of 10Y US treasury notes. With better-than-estimated corporate earnings, US stocks are in the 5th year of a bull market amid 3 rounds of bond purchases by the Federal Reserve, creating optimism over the global central bank stimulus. This week is quiet with no data releases, with the exception of Fed speaker Stein speaking today on dollar funding panel and Fed Chairman Ben Bernanke speaking at the Chicago Conference this Friday.
EUR – The euro crawled up for the 2nd straight day against the US dollars after an unexpected rise in German industrial output curtailed prospects of a near-term interest rate cut in the euro zone. Not only has the positive German data helped euro sentiment, investors are also focused on financial markets with euro zone bond yields falling and equities rising adding to a positive risk environment. The euro rose as high as 1.3177 after German Industrial output data showed a rise of 1.2% during March, against a forecasted fall of 0.1%. Data also showed industrial orders rising 2.2% in March from February which included foreign orders rising by 2.7% and domestic orders up by 1.8%. Despite recent data showing signs of a recovery, analysts say German data overall has been mixed. This data included investor sentiment worsening, April data showing contraction in the private sector and a rise in unemployment, signaling that Germany could be heading for another contraction in the 2nd quarter. In addition, market participants still consider the possibility of further easing from the ECB while awaiting the release of the 1st quarter economic performance report due next Wednesday.
GBP – The sterling climbed against the US dollar and retreated from a 3-month high against the euro while investors favored the pound with more evidence of a recovery in the British economy. The pound has risen from a 2-1/2 year low after striking 1.4832 in early March following signs of a boost in economic activity in the UK and expectations that the BoE will keep monetary policy unchanged for the next couple of months when Bank of Canada chief Mark Carney takes over in July. Strategists believe the sterling will reach 1.53 in a month’s time and then 1.49 in 6 to 12 months as the BoE is expected to print another 25B pounds on top of the 375B already created through its QE program. Market participants await the March industrial output released on Thursday which may show positive momentum stemmed from recent better-than-expected business surveys
JPY – The Japanese yen strengthened for the 2nd straight day against the US dollar after losing more than ¼ of its value since last October. Strategists believe that the yen’s rapid slide will be subdued as investors wait to see the impact of the mega-stimulus program released by the BoJ last month. Last month, mandated by Prime Minister Shinzo Abe, the BoJ aggressively announced that they promise to inject $1.4 trillion into the economy within 2 years, which sent the Nikkei higher, bond yields to record lows and the yen slide. Recent polls showed the dollar will remain around the current rate of 99 yen in 1 month, 101 yen in 3 months and 105 yen in a year, a big change from 94.3, 95 and 98 yen respectively in last month’s poll.
Commodity Currencies – The Canadian dollar held steady against the US dollar after its 2-1/2 month high yesterday, its strongest level since February as markets await Friday’s domestic employment data. Recent Canadian housing starts data slipped in April from March signaling that the country’s hot housing market is cooling. The seasonally adjusted annualized rate of housing starts was 174,858, down from 181,146 in March, in line with the average expectation of analyst polls. The CAD had little reaction to the data but analysts expect it to weaken in the year ahead with looming concerns about the economy’s slow growth rate compared to the US. The New Zealand dollar weakened against the US dollar after the RBNZ governor Wheeler confirmed the selling of its own currency for only the second time since 1985. The kiwi surged 4.2% this year, which Wheeler admitted to the currency being overvalued needs to be lower to boost exports, which make up 30% of its economy. The intervention demonstrates the widespread unease among smaller economies amongst the aggressive monetary expansionary campaigns in the US and Japan causing pressure on the kiwi.
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