Dollar Falls on Improved Sentiment

* The dollar fell versus most other key currencies on Tuesday as risk appetite increased after Treasury Secretary Timothy Geithner said the “vast majority” of US banks are well capitalized. The yen fell as the Dow rose 128 points to 7,970. Sterling found support at the 1.45 handle ahead of tomorrow’s UK budget announcement. The Canadian dollar rose modestly despite the Bank of Canada’s unexpected 25 basis-point rate cut. The Australian dollar advanced on improved risk sentiment and comments by Reserve Bank of Australia Governor Glenn Stevens that Australia’s economy will “weather the storm better than most.”

* The EUR/USD rose modestly for the first day in six as the ZEW German business confidence index turned positive for the first time since July 2007. The pair has been pressured by rising risk aversion and questions on the European Central Bank’s policy response to the deepening European recession. The short-term trend for the EUR/USD is negative. There are resistance in the 1.31-area and support in the 1.28.



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Financial and Economic News and Comments

US & Canada

* Canada’s wholesales sales unexpectedly declined 0.6% m/m to C$41 billion ($33.1 billion), the fifth consecutive monthly drop, after January’s upwardly revised 3.9% m/m decrease, data from Statistics Canada showed.

* The Bank of Canada unexpectedly cut the overnight rate target 25 basis points to 0.25%, stating that “conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”

Europe

* German producer prices decreased a more-than-expected 0.7% m/m in March after a 0.5% m/m decline in February, according to figures from the Federal Statistical Office. The March PPI unexpectedly fell 0.5% y/y, the largest fall since September 2002, following February’s 0.9% y/y increase.

* The ZEW German economic expectations index rose more than anticipated to 13.0 in April, the first positive reading since July 2007, from -3.5 in March, indicating Germany’s investor confidence rose to the highest level since June 2007, data from the ZEW Center for European Economic Research showed. However, the current economic situation index declined more than expected to -91.6, the lowest since September 2003, from March’s -89.4.

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* The eurozone economic sentiment outlook rose more than expected to 11.8 in April from -6.5 in March, ZEW data showed.

* UK consumer prices increased 0.2% m/m in March, matching forecast, after a 0.9% m/m advance in February, according to CPI data from the Office for National Statistics. The consumer-price inflation rate was at 2.9% y/y, as forecast, the lowest level in a year and decelerating from February’s 3.2% y/y. The core CPI rate was at 1.7% y/y, accelerating from February’s 1.6% y/y. The retail price index fell a slightly less-than-expected 0.4% y/y in March, the first decline since 1960. Excluding mortgage interest payments, the RPI increased 2.2% y/y, as forecast, the least in three years.

* Riksbank cut the 7-day repo rate 50 basis points to a record 0.50%, saying it is ready to take further measures to combat Sweden’s first recession since 1992. Riksbank Governor Stefan Ingves signaled in February the possibility of zero rates. The central bank will probably lower the key rate again at its next meeting in July.

Asia-Pacific

* There is scope for additional monetary easing from the Reserve Bank of Australia, according to minutes of the April 7 RBA policy meeting, released in Sydney today. The minutes read: “the effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than earlier expected, though a recovery in demand was likely towards the end of the year. A period of low capacity utilisation and a weaker labour market was seen as increasing the likelihood of a decline in inflation over the medium term. As such, members saw scope for a modest reduction in the cash rate.” RBA Governor Glenn Stevens said the long-term prospects for the Australian economy are good and Australian households are “essentially optimistic” about the future, adding that “there remain good grounds to think that we will continue to weather the storm better than most.”

FX Strategy Update




©2004-2008 Globicus International, Inc. and Capital Market Services, L.L.C

Source: Hans Nilsson

21.04.2009