AUD/USD Testing Support on China’s Sluggish Growth

* The dollar rose against most major currencies on Thursday. US economic data were mixed. Initial jobless claims fell to their lowest level since January 24 and the Philadelphia Fed manufacturing data improved; however, housing starts and building permits fell more than expected. The Dow rose 95.81 points to 8,125.43, led by gains at Hewlett-Packard Co. and better-than-expected earnings at JPMorgan Chase & Co. The yen was little changed against the dollar. The euro pared some overnight losses on a record year-on-year decline in eurozone industrial production and record-low inflation. Sterling was pressured by a 1.2% y/y decline in March BRC UK same-store sales. The Canadian dollar fell despite a better-than-expected rise in Canada’s manufacturing shipments.

* The AUD/USD fell on worries China’s economy is slowing reducing demand for Australian exports. Chinese GDP growth was at 6.1% y/y, the slowest pace in almost a decade. However, stronger-than-expected Chinese industrial production may signal the Chinese economy is starting to recover from its growth slowdown. Our Globicus leading economic indicator for Australia has not yet indicated a recovery in the Australian economy. The AUD/USD, testing the short-run uptrend today, is currently overbought. If the diagonal support is broken, the pair may fall to the 0.70-area support. There is resistance in the 0.73 area. We move up the stop to 0.6950.



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Financial and Economic News and Comments

US & Canada

* US housing starts declined a larger-than-expected 10.8% m/m to a seasonally adjusted 510,000 annual rate in March, after a downwardly revised 17.2% m/m increase to 572,000 in February, figures from the Commerce Department showed. Housing starts dropped 48.4% y/y. The decline in March housing starts was due to multiple-family units, which fell 29.0% m/m. Single-family starts were unchanged, having been above the January level for the past two months. Housing starts decreased in the South and West, but increased in the Northeast and Midwest. Building permits declined a more-than-expected 9.0% m/m in March to a 513,000 annual rate, following February’s upwardly revised 6.2% m/m increase to 564,000. Single-family permits fell 7.4% m/m in March, down 41.9% y/y.

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* US initial jobless claims in the week ending April 11 dropped 53,000 to 610,000, their lowest level since January 24, following the prior week’s upwardly revised 663,000, data from the Labor Department showed. The 4-week average declined 8,500 to 651,000, the first decrease in 12 weeks. Continuing claims in the week ending April 4 jumped 172,000 to 6,022,000, the highest level since records began in 1967, following the prior week’s upwardly revised 5,850,000. The insured unemployment rate increased to 4.5%, a 26-year high, from 4.4%.

* The Philadelphia Fed manufacturing current activity index increased more than expected to -24.4 in April from -35.0 in March, indicating manufacturing in the Philadelphia region contracted at a slower pace, data from the Federal Reserve Bank of Philadelphia showed. The outlook index for six months from now rose to 36.2, its highest level since October 2007, adding to evidence that a turnaround in economic activity has begun.

* Canada’s manufacturing shipments advanced a more-than-expected 2.2% m/m to C$42.9 billion ($35.7 billion) in February, the first increase in seven months, led by a 35.0% m/m gain in sales of vehicles and parts, following January’s upwardly revised 5.3% m/m decline, according to data from Statistics Canada.

* The International Monetary Fund said in its April World Economic Outlook: “the current recession is likely to be unusually long and severe, and the recovery sluggish. However, strong countercyclical policy action, combined with action to restore confidence in the financial sector, could improve prospects for recovery.”

Europe

* The eurozone consumer-prices inflation growth rate decelerated to a record-low 0.6% y/y in March led by falling energy prices, final CPI data by Eurostat confirmed, in line with preliminary data, following February’s 1.2% y/y. The core CPI growth rate slowed to 1.5% y/y from February’s 1.7% y/y. On a monthly basis, March CPI increased 0.4% m/m, unchanged from February’s reading.

* Eurozone industrial production dropped a more-than-anticipated 18.4% y/y in February, the largest decline since records began in 1986, following an upwardly revised 16.0% y/y decrease in January, data from Eurostat showed. March IP declined a less-than-expected 2.3% m/m, marginally better than January’s upwardly revised 2.4% m/m slide.

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* Switzerland’s producer and import prices declined a more-than-expected 0.5% m/m in March after a 0.6% m/m fall in February, according to the Federal Statistical Office. Producer and import prices fell 2.8% y/y, a 10-year low, following a 1.8% y/y decrease.

Asia-Pacific

* China’s GDP grew 6.1% y/y in Q1 2009, the slowest rate on record, after a 6.8% y/y rise in Q4 2008, the National Bureau of Statistics of China said. Industrial production rose 8.3% y/y in March, up from a 3.8% y/y rise in January and February, and urban fixed-asset investment jumped 30.3% y/y in March, adding to evidence that the government’s 4 trillion yuan ($585 billion) stimulus plan is working. However, Premier Wen Jiabao cautioned against “blind optimism,” warning that while the Chinese economy is in a “better-thanexpected” condition, China is yet to establish a solid foundation for an economic recovery.

* Japan’s machine tool orders for March was downwardly revised to a 85.2% y/y drop, compared to a preliminarily reported 84.5% y/y decrease, according to final data from the Japan Machine Tool Builders’ Association.

FX Strategy Update



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Source: Hans Nilsson

16.04.2009