v US housing starts fall short of expectations at 689k, but building permits pushed to the highest levels since late 2008;
v EUR consolidated in its overnight ranges despite renewed fears that Greece will need yet another round of funding assistance and as the ruling party in The Netherlands lost its majority in parliament;
v Commodity Currencies are sharply lower as the slower outlook for Chinese economic growth is crimping demand for higher yielding assets.
The USD has rebounded sharply this morning, albeit within its recent ranges, gaining against all 16 of its most actively traded counterparts on a modest resurgence in risk aversion. The drop in confidence comes after China's Premier Wen Jinbao revised the outlook for Chinese economic growth downwards to 7.5% in 2012, short of the 8% pace set over the past seven years. As the second largest economy in the world, Chinese growth is an increasingly integral part of overall global economic performance. As such, investors are shifting capital out of higher yielding, but riskier assets in favor of the dollar and other safe-haven instruments. Meanwhile, US housing starts registered just short of expectations at 689k, and down from last month's reading of 706k. This suggests that the housing market is still struggling to gain traction. However, building permits, a leading indicator reflective of future demand, jumped to the highest level since October 2008. While the data is not a complete disappointment, and suggest that the overall US economy is on the mend, it may not be enough to counterbalance signs elsewhere that the global economy is struggling to expand.
The EUR consolidated in its recent ranges overnight despite renewed concerns over the sustainability of Greek debt. With the ink barely dry on the second EU/ECB/IMF bailout package for Greece, fears are rising that the embattled nation may need additional capital or further debt restructuring. Greek PM Papademos told reporters that his nation may need further cash injections in the coming years if they are unable to return to the financial markets by 2015. Meanwhile, political turmoil in other parts of the Eurozone is adding concern. Dutch Prime Minister Mark Rutte is fending off calls for an early election after an alliance with the conservative Freedom Party, the same party that has called for a referendum on The Netherlands' use of the EUR, fell apart. The Dutch economy fell into recession for the second time in three years at the end of 2011, and the government is struggling to pass austerity measures aimed at containing the budget deficit. The common currency came under further pressure as German producer prices also fell by more than expected, registering 0.4% versus last month's reading of 0.6%, suggesting that the ECB has room to ease monetary policy in the coming months.
The GBP is lower against both the EUR and USD this morning as slowing inflation will likely keep the BoE active. While CPI gained on a month over month basis, headline inflation fell to a 15-month low in February at +3.4%. The drop is an encouraging sign for the economy, and supportive of the BoE's optimistic view that inflationary pressures will moderate towards 2% by early 2013. However, the data does serve to undermine the GBP as investors price in further rounds of monetary easing from the BoE.
The JPY pulled back from overnight gains against the dollar, but remains towards the top of its recent ranges. Early yen gains were tempered by a disappointing reading of the All Industry Activity Index, which contracted by 0.7%, nearly erasing last month's 1.3% gain. With no good news out of Japan, the yen will struggle to post sustainable gains, but its downside remains limited by increasing risk aversion.
The Commodity Currencies are sharply lower this morning as stocks and commodities pushed deep into the red. Oil eased to $106/bb, gold fell to $1656/oz and copper declined to $383/lb on the dimmed outlook for the global economy. The CAD slipped nearly a percent against the USD on the falling price of oil, Canada's main export, and as the worsening outlook for the Chinese economy crimps demand for riskier assets. Similarly, the NZD and AUD are sharply lower as investors seek the relative safety of the USD and government assets. Nevertheless, the outlook for the AUD is improving as yields on government bonds rose above the RBA's overnight rate for the first time since last August suggesting that further interest rate cuts are not imminent.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.