Thursday, the Japanese yen extended its yesterday's downtrend against other major currencies as a surge in global stocks increased investors risk appetite and thus hurts low-yielding currencies. The yen plunged to a new multi-month low against the kiwi and 2-day lows against the euro, the franc, the aussie and the loonie.
Strong equity markets are a signal that worries about the global recession are diminishing, which encourages carry trade and underpins high yielding currencies such as the New Zealand and Australian dollars.
The stock market in Japan ended higher today, on speculation that concerted efforts initiated by the central banks as well as governments will succeed in pulling out the global economy out of recession sooner-than-expected. Positive data from the U.S. related to durable-goods orders and new home sales and higher closing in Wall Street on Wednesday further raised speculation that the global economy might have bottomed out. Buying interest is evident in the markets as pessimism gives way for faint hope as Nikkei 225 Index gained more than 22% since reaching the 26-year low earlier in the month.
The benchmark Nikkei 225 Index rose 156.34 points or 1.8% to 8,636, and the broader Topix Index of all the First Section issues gained 1% or 8.32 points to 827. The market, after opening weaker and sliding down on profit taking, recovered in mid-morning trades, continued to trade in a narrow range in afternoon and surged in the last hour to close near the day's high on strong buying interest from investors.
On the economic front, the Bank of Japan said that corporate service prices in Japan were down 2.6% year-over-year in February. Forecasts called for a 2.5% year-over-year drop after the 2.2% annual decline in January. On a monthly basis, corporate service prices inched higher by 0.2%.
The yen declined to 98.27 against the dollar during early deals on Thursday. This may be compared to yesterday's close of 97.53. On the downside, 98.6 is seen as the next target level for the Japanese currency.
In early trading on Thursday, the yen slumped to a 2-day low of 133.49 against the euro. The next downside target level for the yen is seen at 134.5. The euro-yen pair was worth 132.50 at Wednesday's close.
The German GfK consumer confidence report for April, French March consumer confidence index, Italian March business confidence and trade balance data for February, Euro-zone M3 money supply for February, which were released today likely influenced the euro.
The yen that closed yesterday's trading at 141.93 against the pound fell to 143.61 in early deals on Thursday. If the yen weakens further, it may find near term support around the 145.1 level.
UK's retail sales dropped 1.9% in February from the previous month, while economists were expecting a monthly 0.4% decrease. From the previous year, retail sales volume rose 0.4% in February, which was the lowest growth since September 1995. Annual growth stood below 2.5% increase expected by economists.
During early deals on Thursday, the yen declined to a 2-day low of 87.63 against the Swiss franc. If the yen falls further, it may likely target the 87.75 level. At yesterday's North American session close, the franc-yen pair was quoted at 87.02.
Against the currencies of Australia and Canada, the yen dropped to a 2-day low of 68.98 and 80.11 during early deals on Thursday. The next downside target level for the Japanese currency is seen at 69.6 against the aussie and 80.7 against the loonie. The aussie-yen and the loonie-yen pairs were worth 68.07 and 79.22, respectively at yesterday's close.
The Reserve Bank of Australia says the nation's banking system is one of the world's strongest, and is well-positioned to weather the global economic crisis. In its semi-annual Financial Stability Review issued today in Sydney, the RBA notes that that while the global financial system continues to experience significant stress, the Australian Banking system has performed well over recent times.
On the economic front, the Conference Board's Leading Economic Index for Australia registered a decline of 0.6 percent decline in January. The Board's Coincident Index increased 0.6 percent for the period.
In early trading on Thursday, the yen tumbled to 56.98 against the New Zealand dollar. This set the lowest point for the yen since November 11, 08. On the downside, 61.6 is seen as the next target level for the yen.
New Zealand posted a current account deficit of NZ$16.1 billion for the full year ending in December 2008, according to data released today by Statistics NZ. The deficit amounted to 8.9 percent of GDP. The agency said the deficit grew from NZ$15.5 billion for the year to September 2008, which represented 8.6 percent of GDP. The deficit for the full year to December 2007 was NZ$14.4 billion or 8.2 percent of GDP.
Traders now look forward to the New York session, in which the US Bureau of Economic Analysis is due to release its final fourth quarter GDP report at 8:30 am ET. The report is likely to show that the U.S. economy contracted by a 6.6% rate in the quarter.
At the same time, the Labor Department is due to release its customary weekly jobless claims report for the week ended March 21st.
Various Fed officials are scheduled to speak today. Treasury Secretary Timothy Geithner is scheduled to testify on financial regulation reform before House Financial Services Committee in Washington at 10 am ET.
Dallas Federal Reserve Bank President Richard Fisher is due to speak to students as part of the ninth annual Redefining Investment Strategy Education Forum at the University of Dayton at 12 pm ET.
Richmond Federal Reserve Bank President Jeffrey Lacker is scheduled to be the keynote speaker for the 2009 Economic Outlook Conference and luncheon of the Charleston Metro Chamber of Commerce, in Charleston, South Carolina at 12:40 pm ET, while Minneapolis Federal Reserve Bank President Gary Stern would speak at a luncheon of the Economic Club of Minnesota in Minneapolis on Better Late Than Never: Addressing Too-Big-To-Fail at 1 pm ET.
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