- The dollar fell against its rivals on Friday as US consumer confidence dropped to a 28-year low and crude oil rose to a record high, increasing concerns US economic growth will continue to slow and the Federal Reserve will cut interest rates further. The yen advanced following better-than-forecast Japanese Q1 2008 GDP growth and a jittery US equity market. The Australian dollar rose on speculation China will invest in Australian mining companies. The USD/CAD is testing support at an 8-week low as surging oil prices bolstered demand for Canada’s commodity exports.
- The EUR/USD rose the most in a month after unable to penetrate the 1.54-handle support. There is resistance at the 1.57-handle. The pair will possibly be in a trading range until the US equity market either breaks its resistance level or fails to do so. A penetration of the US stock market’s resistance as well as a Fed statement of no further easing would be beneficial for the dollar and US economy.
Financial and Economic News and Comments
US & Canada
- US housing starts unexpectedly rose 8.2% m/m to a 1.032 million annual rate in April as construction of multifamily units rose 36% m/m following a 35% m/m drop in March, while single-family houses fell to 692,000 the lowest level since 1991. Building permits unexpectedly rose 4.9% m/m to a 978,000 pace, reflecting gains in both single- and multifamily units. Permits fell 34.3% y/y and starts declined 30.6% y/y. Despite the overall better-than-expected month-on-month data, it is too early to call for a bottom in the housing market.
- The Reuters/University of Michigan preliminary index of consumer sentiment fell to a lower-than-expected 59.5 in May, the weakest level since June 1980, from 62.6 in April. The current conditions indicator decreased to 71.7 in May, the lowest level since December 1980, from 77 in April. The consumer expectations gauge fell to 51.7 in May from 53.3 in April. Inflation expectation over the next 12 months rose to 5.2%, compared with 4.8% in the April survey.
- Euro-area exports fell 2.9% m/m in March and imports were unchanged, resulting in a trade deficit of €2.4 billion ($3.7 billion) compared with a €1.6 billion surplus in February, the Eurostat reported.
- European Central Bank President Jean-Claude Trichet said the ECB cannot relax in its fight against inflation and that price stability in the medium term has to be ensured. Price stability is a necessary condition to sustain economic growth, job creation and social cohesion, Trichet said.
- Scandinavian central banks have entered into a €500 million ($773.2 million) swap facility agreement with the Central Bank of Iceland, which gives the Icelandic central bank the right to acquire euro against Icelandic krona. The Icelandic krona has been hard hit since the global credit crunch erupted last summer, with the currency depreciating sharply and inflation surging.
- Japan’s economy grew a stronger-than-forecast 0.8% q/q in Q1 2008, translating into a 3.3% q/q growth rate on an annualized basis following a downwardly revised 2.6% q/q annualized growth rate in Q4 2007, the Cabinet Office said. Consumption, export and residential investment added to the expansion while weak business investment limited the GDP advance. Although impressive, the Q1 2008 growth rate is unlikely to sustain in Q2 2008, and compared to a year ago, GDP only rose 1.0% y/y.
FX Strategy Update
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