Tuesday March 30, 2010

Business as usual resumed on Tuesday with currency traders paying full attention to commodity currencies against a backdrop of ongoing health for the global economy. The world's stock markets are powering to a healthy first quarter close adding to the growing body of recovery evidence. Included within business as usual is an ingoing reservation to have a change of heart about the euro even after the government of Greece was able to sell securities yesterday. The euro is higher, but it's certainly not caused traders to leap for joy at the prospects for the single currency nor has it declawed the euro bear just yet.


U.S. Dollar - For the second time this week the dollar is starting the session on a weaker footing with Asian economic data playing a role in dulling demand for the safety of the dollar. Overnight the Bank of Korea raised its 2010 GDP forecast from 4% at the turn of the year to 5%. Separately a South Korean manufacturing survey rose to its highest reading in seven years indicating national and regional strength.

A diminishing dollar helps spur commodity price gains as investors speculate on rising aggregate demand. Together these features lift the relative appeal of both Australian and Canadian units, which is precisely where the chink out of the dollar's armor has disappeared today.

British pound - But the day's biggest winner against the dollar is the pound sterling, which saw gains fuelled earlier by a further revision to final GDP data for the fourth quarter. The earliest estimate many weeks ago revealed an insipid pace of growth hardly worthy of reporting. That 0.1% increase when first revealed shocked investors and helped sour already weak sentiment surrounding the pound. An earlier revision tripled the strength while today's final showing revealed a 0.4% quarterly pace of growth, which means that the British economy shrank by 3.1% compared to the first reported 3.4% contraction.

Today's response helped lift the pound well above the $1.50 mark and is currently trading at $1.5079 having hit $1.51 earlier. Against the euro the pound continues to make strides and today strengthened to 89.27 pence from 89.96 at Monday's close.


Canadian dollar - Another bright start for the Canadian dollar, which earlier rose to buy 98.24 U.S. cents, which is a tiny amount short of Monday's high and more than a cent higher than Friday's weaker moments. The prospects for metals and energy prices continues to look appealing and with rising yields only a matter of time in Canada according to last week's notes from Bank of Canada Governor Carney, investors are keen to buy the loonie on each and every dip.

Aussie dollar - The Aussie appreciated the positive tone to regional equity prices and found favor among investors once again reaching its highest point in 11 days. The Aussie currently buys 92.04 U.S. cents.

Euro - French GDP data for the fourth quarter failed to surprise and matched an earlier estimate. The Eurozone's second largest economy grew at 0.6% during the quarter leaving the economy 0.3% smaller during 2009. The euro is trading both sides of unchanged versus the U.S. dollar this morning as investors have little fresh conviction to build on Monday's relief rally, yet can't find enough firepower to challenge the short-term bullish sentiment. Having already reached $1.3537 in early trading the euro is making a second run at the day's low of $1.3453 as speculators test its resolve.

The clouds overhanging the Eurozone in terms of sovereign debt issues refuse to blow away. While Greece was able to sell a fresh batch of securities Monday following the accord between EU members who endorsed financial assistance in conjunction with the help of the IMF, investors still appear nervous. Yield spreads between German and Greek debt widened as investors still sense that a fully-funded path during 2010 is still likely to be anything but a clear route. The situation appears patched over until Greece faces difficulties selling more bonds at which point the EU and IMF coalition will be called upon to help Greece hop over the hurdle.

Japanese yen - The yen remains susceptible against the dollar at ¥92.63 and against the euro at ¥124.77. Dealers are eagerly awaiting Thursday's Bank of Japan Tankan survey of large business in light of recent additional stimulus measures.

Andrew Wilkinson

Senior Market Analyst