Monday July 19, 2010

By all accounts it's a quiet start to the week. Japanese traders have a day off on account of Marine Day and even a snap election called by Australia's newly-minted Prime Minister appears to have had precious little impact on the value of the local dollar. For choice the dollar is weaker as analysts continue to pare their expectations for U.S. growth leaving the euro to glow amid a healthy short-rate yield differential.

U.S. Dollar - The economic hangover continues to weigh on the value of the U.S. dollar ahead of data later this morning that may show home builders' confidence slipped to its lowest since March. Analysts expect a dip in the NAHB index to a reading of 16 from 17 in June. Later in the week Fed President Bernanke gets to air his views to Congress and although he will likely discuss the vogue topic of a slowing economy, he'll likely focus on the contents of last week's official minutes. The dollar index is slightly weaker at 82.51.

Euro - Dealers attempted to sell the euro on a couple of limp excuses earlier only to see the single currency rebound to $1.2962 against the dollar. Some are already claiming that the recent revival of the euro's fortunes against the dollar is likely to threaten European exports. A credit-rating downgrade for Ireland earlier spooked investors. However, a lack of follow-through selling left others pointing out that the latest Moody's opinion left the nation on a stable footing, which means investors can possibly take solace in the fact that a string of downgrades may have finally run its course. Official talks between the government of Hungary and the IMF ended without endorsement of the new regime's budget plans. That leaves Hungary unable to tap a previously agreed sum of loans. Investors attempted to sell the euro on this story but were met with apparent Middle East buying via the London market.

British pound - Britain's largest property website, Rightmove Plc said that the abundant supply of homes hitting the market over the summer is causing sellers to reduce prices. Around 30,000 homes are listed each week or around three times the number of mortgage approvals. The agency predicts home prices will continue to decline through year end, congruent with another economist's prediction of last week, predicting that real estate prices will continue lower into 2012. The pound is marginally lower at $1.5291 and seems largely unphased by the news in a less dollar friendly environment. The mechanics of the housing market are not exactly new factors. The over supply of homes amid tighter lending standards and a confidence-sapping emergency budget each underlie the likely contraction of average housing prices.

Aussie dollar - Prime Minister Julia Gillard said there'd be a general election on August 21 confirming some speculation that she'd call a snap parliamentary vote ahead of the November deadline. The Aussie dollar failed to respond and today buys marginally less at 86.84 U.S. cents. Minutes are due Tuesday from the recent RBA meeting with inflation due later in the week. The RBA is most likely to keep policy on hold until after the election in one month's time.

Japanese yen - Although it is a day off for Japan, the yen has weakened overnight. The dollar rose to ¥87.24 before being beaten back to ¥87.03. Meanwhile the euro strengthened to ¥112.85 while the yen also lost out to the pound at ¥133.10.

Canadian dollar - Weaker risk appetite to end last week sent the Canadian dollar reeling to 94.50 U.S. cents. This morning the Canadian unit has added about half a cent to 95.00 cents.

Andrew Wilkinson

Senior Market Analyst ibanalyst@interactivebrokers.com       

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