The dollar fell broadly on Monday as U.S. and European equity markets rose and investors took on more risk in hopes that the worst of a deep world recession may be coming to an end. Data from U.S. showed pending sales of existing homes posted their first gain in almost a year in March while spending on construction projects unexpectedly rose in last month for the first time in half-a-year as increases in commercial and government projects overshadowed an ongoing drop in home building.
Strong economic data from U.S. reduced safe-haven demand for greenback and the ICE future dollar index slid by 0.91 percent to 83.771 in late New York trading, while the single currency, British pound, Swiss franc and New Zealand dollar rose to session highs of 1.3426, 1.5025, 1.1253 and 0.5772 against the dollar respectively before stabilising.
The Australian Bureau of Statistics showed house prices in the country fell by a record annual amount in the three months through March as the nation’s first recession since 1991 and surging unemployment sapped demand for property. An index measuring the weighted average of prices for established houses in the eight capital cities slumped 6.7 percent from a year earlier, after dropping a revised 3.9 percent in the fourth quarter. The Australian dollar fell to sessions of 0.7302 against the dollar and 72.67 versus the yen after the announcement but rallies in U.S. and European stock markets lifted the higher-yielding currency and it rose to six-month highs of 0.7412 and 73.57 respectively.
In other currency, Mexico’s peso rallied versus the greenback on Monday after Health Minister Jose Cordova said the flu outbreak is in a ‘declining phase’ and appears to have ‘contained itself’. He also said the swine flu shows a 4 percent mortality rate, compared with 70 percent in cases of the SARS virus. In late New York session, usd/mxn was trading at around 13.2400.
U.S. equities rose on Monday as investors bet that the government’s stress tests will not force banks to raise as much capital as originally thought and hopes that the economic slump was abating. By the end of the New York trading, the Dow Jones industrial average rose 214 points or 2.61 percent and closed at 8,426. Bank stocks in U.S. were the standouts, with Citigroup ended up 7.7 percent to USD3.20, while Bank of America climbed 19.3 percent to USD10.38 and Wells Fargo rallied 23.7 percent to USD24.25.
Economic data releases on Tuesday include Australia RBA rate decision, U.K. PMI construction, eurozone PPI, and U.S. ISM-non manufacturing. The Australia’s central bank is expected to leave its cash rate steady at a record low of 3.00 percent to save its ammunition for tougher times ahead. At 14:00GMT, Federal Reserve Chairman Ben S. Bernanke will testify before the Joint Economic Committee about the economic outlook.