USD/CAD Testing Resistance

* Despite the dollar’s decline mostly versus its counterparts on Wednesday, deflation pressures increased. Commodity, stocks, gold prices and interest rates all fell today, pressured by the recent dollar surge. US month-on-month consumer-price inflation unexpectedly declined and mortgage foreclosures rose to a record. The Federal Reserve said in April 27-28 meeting minutes, released today that “most participants favored deferring asset sales for some time,” while others “favored a strategy in which the Committee would soon announce a general schedule for future asset sales, with a date for the initiation of sales that would not necessarily be linked to the increase in the Committee’s interest rate target.” Fed policy members also lowered their projections for core inflation while keeping forecasts little changed for economic growth and unemployment in 2011 and 2012. After finding support at the 200-day moving average, the S&P 500 pared earlier losses and later declined 5.75 to 1,115.05. The yen rose on carry-trade unwinding. The euro reversed losses from yesterday’s Germany bans on naked short sales, following rumors of central banks intervention to support the single currency. Sterling rose despite dovish Bank of England minutes. The Australian dollar plunged on worries about China’s economic growth.

* Despite a sharp rise in Canadian wholesale trade and a rebound in crude oil prices, the USD/CAD rose for a second day. The recent tightening in global monetary conditions and decline in commodity prices may delay the Bank of Canada’s expected June rate hike. Canadian CPI and retail-sale data this Friday will give us some clues on the BOC’s move. After successfully testing the support at par, the USD/CAD has been rising and now testing the long-term downtrend. If this resistance is broken, the outlook for the pair will improve.

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Financial and Economic News and Comments

US & Canada

* US consumer prices unexpectedly slipped 0.1% m/m in April, the first decline since March 2009, after a 0.1% m/m increase in March, CPI data from the Labor Department showed, indicating US consumer-price inflation remains well contained. The consumer-price inflation rate slowed to 2.2% y/y from March’s 2.3% y/y. The April month-on-month CPI decline was led by a 1.4% m/m decrease in energy prices. Food costs were up 0.2% m/m, posting modest increases for a sixth consecutive month. The core CPI, which excludes food and energy, held at 0.0% m/m in April and March. The core CPI rate decelerated to 0.9% y/y, the smallest increase since January 1966, from March’s 1.1% y/y. Real average hourly earnings rose 0.3% m/m in April but declined 0.6% y/y, according to a separate report from the Labor Department. 

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* Canada’s wholesale sales rose a more-than-expected 1.4% m/m to C$44.4 billion ($42.5 billion) in March, the fourth rise in five months, after a revised 1.5% m/m decline in February, according to figures from Statistics Canada. The March rise was led by machinery, equipment and supplies sales, which advanced 4.9% m/m to C$8.9 billion, the highest since February 2009. Wholesale inventories slipped 0.2% m/m to C$51.1 billion in March, following an upwardly revised 0.3% m/m increase the prior month. The inventories-to-sales ratio declined to 1.15 from February’s 1.17. Wholesale sales climbed 10.3% y/y in March while wholesale inventories fell 9.9% y/y.

Europe

* Eurozone seasonally adjusted construction output grew 7.6% m/m in March, the largest gain since March 1996 and the first increase in three months, after revised declines of 7.2% m/m in February and 1.7% m/m in January, a report from Eurostat showed. The December number was revised up to a 0.3% m/m increase instead of a decrease. March construction output fell 5.2% y/y wda, the 25th straight year-on-year fall but the smallest in three months, following a revised 14.8% y/y February drop.

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Asia-Pacific

* Japan’s seasonally adjusted industrial production increased 1.2% m/m (vs. preliminarily reported 0.3% m/m) in March, the 12th gain in 13 months, after a 0.6% m/m decline in February, final March IP data from the Ministry of Economy, Trade and Industry showed, with the IP index increasing to 94.8 from February’s 93.7. March IP grew 31.8% y/y nsa (vs. preliminarily reported 30.7% y/y), a fourth consecutive year-on-year gain, following a 31.3% y/y February rise. Capacity utilization increased 0.6% m/m sa to 90.6 in March after remaining unchanged m/m in February. March capacity utilization jumped 45.3% y/y nsa.

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* The Westpac–Melbourne Institute Australian consumer sentiment index decreased 7.0% m/m to 108.0 in May after a 1.0% m/m decline to 116.1 in April, suggesting Australian consumer confidence dropped the most in 19 months as consumers were discouraged by the Reserve Bank of Australia’s sixth interest-rate increase since October, according to the latest Westpac Banking Corp. and Melbourne Institute survey. The current condition index declined to 110.7 in May from 111.8 in April. The expectation index fell to 106.1 from April’s 118.9.

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* ustralian hourly pay rates excluding bonuses grew 0.9% q/q in Q1 2010, the fastest pace since Q4 2008, after a 0.6% q/q increase in Q4 2009, according to the Q1 Australian wage price index released by the Australian Bureau of Statistics. The annual WPI growth rate accelerated for the first time in five quarters, advancing to 3.0% y/y in Q1 from 2.9% y/y in Q4.

Source: Hans Nilsson

19.05.2010