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The US Dollar may see near-term selling pressure ahead as Asian shares surged 2% and US index futures rose 1% ahead of the opening bell in Europe after an unexpected improvement in US Durable Orders, boosting risk appetite.

Key Overnight Developments

• NZ Current Account Deficit Shrinks as Imports Tumble 21.9%
• US Dollar Trades Lower as Stocks Rise on US Durable Goods Data


Critical Levels

6-25-09

The Euro crept higher in the overnight session, adding 0.4% against the US Dollar. The British Pound followed suit, testing as high as 1.6468 against the greenback. The Dollar backed off after gaining substantially in US hours as stocks surged in Asian trading, boosted by an unexpected improvement in US Durable Orders that weighed on demand for safe-haven assets.

Asia Session Highlights

New Zealand's Current Account deficit shrank in the first quarter, revealing a shortfall of -NZ$1.25 billion versus -NZ$4.06 recorded in the three months to December 2008. However, the improvement in the headline figure is hardly encouraging, owing to a -21.9% decline in imports rather than any rebound in foreign demand. The metric paints a picture of weak domestic demand and seems all the more ominous in the context of a 1.1% currency appreciation during the reporting period which would reasonably be expected to boost New Zealanders' purchasing power of foreign goods. Private consumption accounts for 62.3% of overall economic growth and continued weakness in domestic spending makes it unlikely that the smaller antipodean nation can mount a meaningful recovery from the current downturn in the near term. Indeed, tomorrow's GDP report is expected to show that the economy contracted for the fifth consecutive quarter, shrinking -0.7% in the three months to March.

Euro Session: What to Expect

An uneventful economic calendar is likely to yield to risk trends as the primary driver of forex price action in European trading hours. Where these trends will lead the major currencies in the very near term looks uncertain, however, as traders resolve the balance between the impact of an unexpected improvement in US Durable Orders and the dovish FOMC policy announcement. The Asian session seemed to favor the former catalyst, pushing stock prices higher and modestly weighing on the US Dollar. The same looks likely going forward with US equity index futures implying the Dow Jones and S&P 500 will open over 1% higher on Thursday, hinting at a healthy appetite for risk-taking across financial markets. That said, a downward revision in tomorrow's final update to US first-quarter GDP figures may amplify the Fed's cautious tone, supporting demand for safe-haven assets and boosting the greenback.

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