Dollar Falls on More Recovery Signs

* The dollar fell against most major currencies on Monday as risk appetite continued to improve on more signs of a global economic recovery. US Treasury Secretary Timothy Geithner said the US favors a strong US dollar and the global recession is abating. He wants China to stimulate domestic markets, seeking a closer tie with China. Better-than-expected data on US personal income, manufacturing and construction added to signs of improving global economic data, spurring investor risk appetite. China’s manufacturing PMI expanded for a third month. The S&P 500 rose 24.03 points to 943.17, a new 2009 high on the day when GM filed for bankruptcy. The euro rose but pared gains after hitting resistance. Sterling advanced as the UK manufacturing PMI gained more than expected and UK home prices stabilized. The Australian dollar was supported by rising commodity prices and rising Australian retail sales and PMI data. The Canadian dollar reversed earlier gains as the governments of Canada and Ontario said they will take an equity stake in a restructured GM.

* The USD/JPY rose on carry-trade demand as investors financed riskier assets by Japanese low interest rate loans. Interest spreads have risen dramatically lately; consequentially, renewing interest in carry trades and supporting the USD/JPY. The pair found support at the neckline and turned up. It is approaching the 200-day moving average resistance. If this is broken, the uptrend will resume. We will buy the pair if the resistance is broken.



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Financial and Economic News and Comments

US & Canada

* US personal income unexpectedly increased 0.5% m/m in April, the largest gain in almost a year, after an upwardly revised 0.2% m/m decline in March, while personal spending declined a slightly less-than-expected 0.1% m/m after March’s downwardly revised 0.3% m/m slide, data from the Commerce Department showed. Personal income rose 0.7% y/y while personal spending fell 1.8% y/y. Disposable personal income increased 1.1% m/m in April, up 4.1% y/y. The personal consumption expenditure deflator was up 0.1% m/m in April, up 0.4% y/y. The core PCE deflator, which excludes food and energy, was up 0.3% m/m in April, up 1.9% y/y. The savings rate rose to 5.7%, the highest since 1995.

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* The US ISM manufacturing index increased more than expected to 42.8 in May from 40.1 in April, indicating US manufacturing contracted at the slowest rate in eight months, according to data from the Institute for Supply Management. The new orders index rose into expansionary territory in May at 51.1, the highest in 18 months, from 47.2. The production index increased to 46.0, the highest since August, from 40.4. The supplier deliveries index advanced to 49.8 from 44.9. The employment index ticked down slightly to 34.3 from 34.4. The prices paid index rose to 43.5, the highest reading since the Lehman Brothers collapse in September 2008, from 32.0.

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* US construction spending unexpectedly climbed 0.8% m/m in April, the largest gain Since August, after an upwardly revised 0.4% m/m increase in March, according to data from the Commerce Department. Residential construction increased 0.6% m/m in April.

* Canada’s Q1 2009 GDP contracted less than expected at a 5.4% annualized rate, the fastest pace since 1991, after a downwardly revised 3.7% contraction in Q4 2008, data from Statistics Canada showed. March GDP declined 0.3% m/m, as forecast, after 0.1% m/m slide in February. The raw materials price declined 0.5% m/m in April after a 12.1% m/m gain in March, while the industrial product price was down 0.5% m/m after March’s 0.3% m/m increase.

Europe

* The eurozone PMI was upwardly revised to 40.7 for May from a previously reported 40.5 and the German PMI was upwardly revised to 39.6 from a previously reported 39.1, according to final May PMI data by Markit Economics.

* The UK average house price held at £155,600 ($255,000) in May after a 0.3% m/m decline in April, indicating house prices stopped declining for the first time in 20 months, according to data from Hometrack Ltd. May house prices fell 9.6% y/y, following April’s 10.1% y/y drop.

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* The UK manufacturing PMI rose more than expected to 45.4 in May, indicating UK manufacturing contracted at the slowest rate in a year, from an upwardly revised 43.1 in April, according to PMI data by Markit Economics.

Asia-Pacific

* Australia’s retail sales gained for a second consecutive month in April, increasing a seasonally adjusted 0.3% m/m, after March’s 2.2% m/m advance, the Australian Bureau of Statistics said. New home sales increased 0.5% m/m in April after a downwardly revised 3.1% m/m gain in March, the Housing Industry Association reported. The AiG performance of manufacturing index improved to 37.5 in May, indicating Australia’s manufacturing contracted at the slowest pace in 7 months, from 30.1 in April, the Australian Industry Group said. Overall, the figures signal the Australian recession is easing.

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* China’s manufacturing PMI was at 53.1 in May after 53.5 in April, indicating China’s manufacturing expanded for a third consecutive month, according to the Federation of Logistics and Purchasing. The export order index improved to 50.1, the first expansion in 11 months. The output index declined to 56.9 from 57.4 and the new order index fell to 56.2 from 56.6.

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* Japan’s output gap, measuring of the balance between demand and supply, fell 8.5% in Q1 2009, the largest drop since records began in 1980, the Cabinet Office said. Wages declined 2.5% y/y in April, extending their longest losing streak since 2003, the Ministry of Health, Labour and Welfare said.

FX Strategy Update



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Source: Hans Nilsson

01.06.2009