EUR/USD Reversed direction, trading sharply higher last week as the FOMC Statement was interpreted by the market as more dovish than expected, and with mostly lower than expected economic data out of both economies. The week began on a positive note, with the rate gaining after making its weekly low of 1.0479 on Monday after ECB President Draghi stated in a speech that, “We are meeting against the backdrop of a steadily recovering economic situation in the euro area. Most indicators suggest a sustained recovery is taking hold. Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.” Continue reading
America’s influence is waning in the world, militarily, economically, and culturally. The global financial structure which has been in place for decades is unraveling and it will not end well for the United States’ currency and economy. This change is being driven by a desire of many nations with totalitarian capitalism to rid themselves of a reliance on the US Dollar which gives the U.S. power over them through threats to remove a country or institution from the dollarized financial system.
We’ve discussed the consequences to the dollar and America in previous posts as far as reserve currency status and interest rates are concerned and the severe problems they could bring. What I’d like to get across right now is the level of uncertainty which is building up across the global financial architecture.
I learned from my years on the “street” to buy on the rumor, sell on the news. Well, the news for weeks now has been the European Central Bank (ECB) starting its quantitative easing program and the Federal Reserve Bank of the United States possibly raising interest rates to ward off inflation and bring America out of its free-money bliss. In fact, it seems that this sentiment has become a very crowded trade, pushing the dollar to levels not seen in over a decade.
However, this is now maybe an old story and judging from the PPI data today, the conventional wisdom could very well be wrong. The numbers that came out this morning showed a decline in the Producer Price Index when the consensus estimate was for an increase of 0.3%. Of even more importance is the fact that this was the fourth monthly decline in a row. The PPI is down over the last year where economists expected a flat reading.
This means that the pressure on the Fed to act might not be as strong as the “consensus” thinks it is. In other words, the dollar could have overshot versus the euro and could be due for a correction back to earth. The PPI weak numbers are also a consequence of a strong dollar themselves; the strong dollar increases import demand and puts a lid on import prices. So, the stronger dollar is a naturally correcting mechanism against inflation.
As far as Europe and the ECB are concerned, they remain mired in a deflationary spiral. The old boogeyman of structured labor markets and state control of the economy continue to keep the continent’s economy from growing. The emperor has no clothes when it comes to Europe. The eurozone governments simply will not push through the reforms that are needed to restart growth and unlock Europe’s potential. Greece is the perfect example and there are multiple, large, critical countries in the region that are right behind Greece when it comes to irresponsibility.
As expected, the ECB’s printing money campaign to buy European sovereign bonds has ignited the EU stock markets. But traders have already anticipated the dollar’s move against the euro, hence the high valuation level of USD/EUR. Yes, the euro may fall further and breach the “parity” level and that will be a big psychological barrier; in other words, I think that’s when you back the truck up as most likely the pair will go the other way eventually.
This is all happening against a backdrop of a recovering US economy. However, I don’t think the recovery is as strong as the market thinks either. America will not start really growing until it is clear we have a more business friendly administration on its way into office. This could be almost another two years from now. The growth for the U.S. economy over the last several years has mostly been from the fracking industry which is now cooling significantly. It will take a while for this weakness to percolate through the oil patch. The problem could get even more serious if oil continues to weaken down to a $30 handle as some are forecasting.
So start looking for an entry point to take the other side of the trade in USD/EUR.
EUR/USD Continued its sharp decline last week as the ECB started its government bond purchase program and the market continued pricing in anticipated guidance for the Fed’s interest rate policy. The rate started the week consolidating at a slightly higher level after making its weekly high of 1.0906 on Monday after the ECB began purchasing bonds under its recently expanded QE program. Also, the Sentix Investor Confidence Index printed at a 7 year high of 18.6, significantly higher than the reading of 15.3 that was expected. The pair then began selling off sharply on Tuesday after speculation in the market that the Fed would remove the word “patient” from their upcoming statement next Wednesday, which would set the stage for a rate hike this summer. Economic numbers had U.S. JOLTS Job Openings at +5.0M, in line with expectations and French Industrial Production, increasing +0.4% m/m versus -0.2% expected. Continue reading
Dictators don’t have a good track record of financial management. Just look at Russia, Venezuela, Argentina, etc. if you don’t believe me. Okay, China may be the exception but I don’t think the fat lady has sung there yet. Turkey is channeling Russia big time right now and this will not end well. Stay away from the lira.
The problem is the same tired old scenario that we are unfortunately seeing too many times around the globe these days. Of course the situation in Turkey has the special circumstance that we are dealing with the old Ottoman Empire right next door to the Islamic State and a rising Iran, but that’s another story altogether.
EUR/USD Extended its previous week’s losses, closing at a level not seen since September of 2003 last week. The loss in the rate was in large part due to a better than expected U.S. Non-Farm Payrolls release and the ECB leaving rates unchanged and reiterating its stimulus program which begins this month. Then pair began the week making its weekly high of 1.1240 on Monday after Eurozone CPI Flash Estimate declined -0.3% y/y compared to an expected decline of -0.5%, while U.S. ISM Manufacturing PMI printed at 52.9 versus an expected reading of 53.4. The rate then consolidated on Tuesday after Spanish Unemployment Change declined -13.5K versus -10.5K expected and German Retail Sales increased +2.9% m/m compared to +0.5% anticipated. Continue reading
AUD/EUR Fundamental Outlook
AUD/EUR extended its previous month’s gains adding another +1.8 percent overall in February. The increase was in part due to the ECB beginning its QE program, the four month extension to Greece’s bailout loan, the interest rate differential and mixed numbers out of both economies. Australian numbers showed improvement in the Trade Balance, which showed a deficit of -0.44B compared to an expected deficit of -0.85B. Also, the Australian housing sector improved last month, with Home Loans increasing +2.7% m/m compared to an expected +2.5%, while Building Approvals showed a decline of -3.3% m/m versus an expected decline of -4.8%.
EUR/NZD Fundamental Outlook
EUR/NZD lost significantly in February, declining an impressive – 5.4% for the month overall. The decline in the cross was in part due to asset flows favouring the Kiwi over the Euro, Greece accepting a four month extension to its bailout loan and the ECB’s unveiling of their QE program. Economic numbers in Europe were mostly mixed last month, with some improvement in Spanish and Italian PMI numbers, German Factory Orders and German and Eurozone Preliminary and Flash Quarterly GDP data. On the negative side were German Ifo Business Climate and German and French Flash Manufacturing PMIs.
Oz to me seems like a no-brainer. The Aussie dollar has been beaten down over a commodity slump and a rate decrease by the Reserve Bank of Australia in the face of the ECB’s quantitative easing program. But the real clincher has been the price action over the last few weeks. If you google Aussie currency news, and review the day to day articles, you will get an idea of what I am talking about. It’s enough to give a day-trader whiplash—Aussie dollar fades, Aussie dollar bounces, Aussie dollar beaten down, Aussie dollar rallies…
I call this a good-ole-fashioned consolidation. After almost reaching parity with the USD last summer, the Australian dollar is building a nice base here in the high seventies. Although the currency could obviously fall further against the USD if the world economy (and especially China) slumps further, I believe investors looks for good value should at least start watching the Aussie for a good entry point and maybe even start taking partial positions.
There’s nothing that can throw cold water on irresponsible populist rhetoric than cold hard reality staring you in the face. It looks as though we are seeing this happen in Greece as we speak. Faced with imminent default, the Greek government stated over the weekend that they would pay their debts owed to the European Union.
With a conciliatory tone,the Greek Prime Minister said this, “The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.” In other words, Greek is looking to walk back some of the inflammatory comments after the election that caused Greek markets to tumble and drastically increased the market’s perception that Greece will not pay its debts.
The Greek situation is the biggest tail risk out there that could cause material volatility in currency markets. The problem is, it could go either way. If Greece swallows the red pill and refuses to abide by previously negotiated agreements, the tiny country would become the first domino in the destruction of the Eurozone as we know it today. Spain, Italy, and possibly others are watching with baited breath to see what happens as they would be right behind Greece in demanding their debts be forgiven or renegotiated. Then all bets are off and there will be unintended consequences in currency markets around the globe. The dollar will spike further.
Financial markets over the past year have been defined by diverging monetary policy settings with shifting rate expectations changing the dynamic of broader forex markets. Having initially traded up above the 94 US Cents mark as recently as September the Australian dollar has now lost more than 15 percent over the past four months a shift made even more notable given its been more than three years since the Australian dollar hit its all-time high of 1.10 in August 2011.
With its weakness being driven mainly by a strengthening US dollar, investors are no longer tying macro developments directly to their implications for QE. Looking ahead over the coming year an eventual tightening of policy by the US Federal Reserve during the first half is expected, a move which should ensure the upward trajectory of the US dollar is maintained.
Keeping in mind the key theme remains Greenback (US Dollar) strength; significant falls across broader commodity prices, softer growth indicators from China as well as a relatively dovish domestic outlook have also played their part.
Looking ahead over the coming 12 months, more of the same is likely with higher rates of return available offshore reducing the attractiveness of the Australian dollar, as a result heightening the risks of a further depreciation.
Michael Judge, OzForex Corporate Dealer
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Mario Draghi did not disappoint today when the ECB announced a QE programme to buy 60 Billion Euro in assets per month until September 2016 . The asset purchases will cover both private and public sector bonds and will begin in March 2015. European focus will now turn to the Greek election on Sunday.
The Swiss National Bank gave us volatility on a historic scale last week as it rocked markets by abandoning the nearly three-year-old policy of supporting the value of the Swiss franc relative to the euro at 1.20. The Swiss franc consequently appreciated sharply across the board, distorting flows and liquidity market-wide.
While this took the market entirely by surprise, the likelihood is that the SNB’s hand would have been forced in the coming months by European Central Bank quantitative easing. The Swiss National Bank would likely not have enough ammunition to maintain euro/Swiss franc at a level of its choosing in the face of the kind of euro weakness that would inevitably result from eurozone QE.
Continued volatility anticipated
Things are unlikely to settle down too much this week either. The ECB’s meeting is the highlight this week, as the market currently expects the unveiling of a quantitative easing package in a bid to stem deflationary pressures in the eurozone.
Throughout my years on Wall Street and to this day, one question has always bothered me. I have never got a good explanation as to why the price of crude oil and the strength of the USD move in negative correlation. I’ve heard many different arguments but none are foolproof. I’ve even read that there is no causality in the relationship, that’s it’s all in our minds.
The main argument seems to be that as most commodities, including crude, have historically been priced in dollars, if the dollar strengthens, it takes less dollars to buy a barrel of crude, and vice versa, hence the reverse correlation. This seems to make sense, but is it just the dollar that drives the relationship? Can an increase or decrease in the price of oil be the determining factor as well? Many explanations have focused on the economic impact of interest rate changes and the possible associated demand implications they would bring. But what about supply? What if, like today, the supply of oil is plentiful and growing due to geopolitical changes in the production of crude? Will this drive a stronger dollar as well? Or is it the stronger dollar that has pushed the oil price lower?
By Jim Vrondas, OzForex
Currency markets breathed a sigh of relief following the release of the European bank stress tests. After nudging 1.2600 against the greenback last week the euro started the new week on a positive note, pushing above 1.2700 seemingly buoyed by the results.
Of the 130 banks tested across the region 25 failed, with the ECB identifying a gap of 24.2 billion euros in capital required as of the end of 2013. When you distil this down further the results seem more benign with 19 billion already raised this year, the aggregate shortfall is reduced to 6 billion.
The markets will now focus more specifically on the five major banks that need more than 200 million euros and must submit a capital plan, no doubt more headlines will follow.
Stronger European banks no medicine for growth
The credibility of the tests are quite rightly being questioned but on the positive side the result is significant because it emphasises the large capital raising and de-leveraging efforts the banks have undertaken since the last stress tests in 2011. The good news is that bank spreads have tightened making them more stable – for now.
Although the banks are in a stronger financial position the European economy is still not looking that flash. The economic slowdown appears to be spreading from the peripheral to the core with signs of weakness in Germany and fears of a deflationary spiral across the region still evident.
With the ECB only just beginning to print money the banks will no doubt be encouraged to “give” more money away, but there are still question marks around how much of this money will reach the real economy and whether it will positively impact growth.
It’s a huge week ahead on the data front for the Australian economy. We have building approvals, GDP, retail sales and trade balance all out — can any one of these sway the Aussie dollar one way or another?
GDP is obviously particularly critical as it’s a key measure of economic growth. The market is expecting a pull-back from first quarter +1.1 per cent result to a second quarter reading of +0.4 per cent. This would bring the annualised rate down from 3.5 per cent to 3 per cent, but it is somewhat of a lagging indicator.
The beauty of this week’s releases is that we get a broad reading on the domestic economy, with data providing some insight across a number of fronts. Building approvals are important for construction activity and general confidence in the economy; so too are retail sales and the state of the consumer.
I can’t see any of these moving the Aussie out of this range unless we get a softer-than-expected GDP reading of say 0.2 per cent or less for the quarter — in this scenario we could see a re-test of strong support between 92c and 92.50c.
RBA decision due
Will today’s Reserve Bank of Australia meeting have any impact on the currency this time? Well we know the RBA has been struggling to exert real influence over the Aussie, despite continued attempts to talk it down. It’s not the only one concerned about the local unit’s strength: BIS Shrapnel recently blamed the high dollar for sapping the strength of Australia’s economic recovery.
As the US dollar rally starts to gather momentum, the euro is approaching its lowest levels in almost a year.
Divergence between the FOMC and ECB interest rate outlooks has been the main driver behind the move that has seen the euro fall 6 per cent since early May. The wedge between the two is only getting wider, with comments from both US Federal Reserve Bank chair Janet Yellen and European Central Bank president Mario Draghi dragging the euro lower over the weekend.
Change of tone in the US
Most of the focus from the Jackson Hole symposium over the weekend has been on remarks made by Janet Yellen. Her comments on the North American economy appear more neutral than hawkish as some have suggested.
They are, however, less dovish as the market has come to expect, and it was a reference to interest rate hikes potentially coming “sooner than market participants currently expect” that sparked a flurry of demand for the greenback. Although the timing on US interest rates is unclear, Yellen’s tone is to be expected, especially from a central bank edging very slowly towards monetary policy tightening.
Economic data takes centre stage
Looking beyond the headlines, it is clear there are still some considerable risks ahead for the US economy. The Fed is looking at much more than just the unemployment rate for a reading on the employment market.
AUD/EUR Fundamental Outlook
AUD/EUR continued gaining ground in July, gaining another +0.9% overall for the month. The gain in the cross was in part due to asset flows and risk appetite favouring the Aussie over the Euro, the interest rate differential and as both economies reported mixed economic numbers. Economic data out of Australia was on balance better than Eurozone numbers, although weakness was evident in Retail Sales, Building Approvals and the Trade Balance.
Traders will be looking to the ECB rate decision on the 7th, as well as the RBA’s Monetary Policy Meeting Minutes for a better perspective on the direction of the cross. Due to weakness in the Eurozone, the rate differential and improving numbers in Australia, the outlook for the cross is positive in the near and medium terms but neutral longer term.
AUD/EUR Technical Chart Outlook
After making a 0.6314 low in late January, AUD/EUR has since been rallying correctively. The cross made yet another recent high at the 0.7035 level on July 23rd after breaking up out of a mildly declining consolidation range on the 21st.
The outlook for AUD/EUR over the coming month is mildly bullish short term and more bullish in the medium term while the channel top line break is sustained to set up a 0.7780 breakout target.
It is time for Spain and the victim states to seize the initiative. They cannot force Germany, Holland, Finland and Austria to swallow eurobonds, debt-pooling and fiscal union, nor should they try since that implies the evisceration of their own democracies.
The Australian dollar drifted higher against the greenback today, heartened by a modest recovery in the euro as a negative reaction to overnight news of Portugal’s credit downgrade fizzled out.
Trading, however, was lacklustre ahead of Australian employment data on Thursday and US non-farm payrolls report on Friday. Analysts polled by Reuters expect a rise of 15,000 jobs in Australia and 90,000 jobs in the United States.
The dollar rose as high as $US1.0734, from $US1.0687 late in New York, after stops around $US1.0715 were taken out. It closed locally at $US1.0711.
AUSTRALIAN DOLLAR – The Pound Australian Dollar exchange rate (GBP/AUD) is 1.5260
The Australian Dollar has taken large strides forward against the other majors on the day, largely thanks to a much better-than-anticipated US Non-Farm Payrolls figure, which was released earlier this afternoon. The job creation figure showed that economic conditions are improving quickly in the world’s largest economy, causing an increase in global appetite for risk. NEAR-TERM OUTLOOK – POSITIVE.
The Pound continued its mini-revival during today’s session following higher than expected Producer Price Index data. The figures added to speculation that a UK interest rate hike may not be as far off as had been previously anticipated. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.
US DOLLAR – The Pound Dollar exchange rate (GBP/USD) is 1.6420
This afternoon’s Non-Farm Payrolls figure showed that 244,000 new jobs were created in the States last month versus expectations of 185,000. This has had the dual effect of bucking the recent dip in risk aversion, which should lead to Dollar weakness, whilst at the same time providing increased confidence about economic fundamentals in the States. NEAR-TERM OUTLOOK – NEUTRAL.
EURO – The Pound Euro exchange rate (GBP/EUR) is 1.1330
The Euro gave up a little more ground against both the Pound and the US Dollar today as the markets continued to digest ECB President Jean Claude Trichet’s comments from his press conference of yesterday afternoon. Trichet stated that a weaker US Dollar was desirable to aid the global recovery, leading many analysts to conclude that he will help achieve this goal by actively weakening the Euro. NEAR-TERM OUTLOOK – NEUTRAL TO NEGATIVE.
NEW ZEALAND DOLLAR – The Pound New Zealand Dollar exchange rate (GBP/NZD) is 2.0662
The New Zealand Dollar has moved in step with the Australian Dollar again today as global risk sentiment picked up. Monday sees the release of key NZ Housing Sector Data which will provide further direction for the remainder of the week. NEAR-TERM OUTLOOK – NEUTRAL.
CANADIAN DOLLAR – The Pound Canadian Dollar exchange rate (GBP/CAD) is 1.5777
The Canadian Dollar re-traced some of the ground it has lost during recent sessions on the day thanks to significantly better than expected Canadian employment data. The CAD was further assisted by some highly positive job creation data in the US, due to strong trading links between the two economies. With little Canadian data of note due for release next week, the CAD may continue to trend higher. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVIVE.
LONDON, March 15 | Tue Mar 15, 2011 5:34am EDT
(Reuters) – The Australian dollar extended falls against the U.S. dollar on Tuesday, losing two percent on the day, while the Swiss franc gained as fears about a nuclear crisis in Japan drove investors to slash exposure to risk.
The Australian dollar fell to a six-week low of $0.9877
The euro fell 1 percent against the Swiss franc EURCHF= and the yen.
Australia’s dollar traded near its highest level in a month against the U.S. currency as stocks and commodity prices rose amid signs the global economy is picking up, increasing demand for higher-yielding assets.
The so-called Aussie gained for a third day against the yen before data which economists said will show U.S. companies added jobs for a 12th consecutive month and European producer prices increased in December. New Zealand’s dollar, known as the kiwi, was close to the highest level in 10 weeks as whole milk powder prices rose to an eight-month high and before data forecast to show employment increased in the fourth quarter from a year earlier.
“There’s a risk-on mood spreading across the markets on the back of the improving global economy,” said Takuya Kawabata, a researcher in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest foreign-exchange margin company. “The Aussie and kiwi are supported by the higher stock and commodity prices.”
Australia’s dollar traded at $1.0117 as of 4:23 p.m. in Sydney from $1.0111 in New York yesterday, when it touched $1.0149, the highest level since Jan. 4. The currency bought 82.47 yen from 82.26 yen.
New Zealand’s dollar fetched 78.08 U.S. cents from 78.14 cents yesterday, when it reached 78.26, the strongest since Nov. 22. It was at 63.65 yen from 63.57 yen.
U.S., European Data
Companies in the U.S. added 140,000 jobs in January after a 297,000 rise in December, according to the median estimate of economists in a Bloomberg News survey before ADP Employer Services reports the data today.
Europe’s producer prices rose 5.2 percent in December from a year earlier, economists surveyed by Bloomberg News said before the European Union’s statistics office data today. That’s the fastest pace since October 2008. Prices advanced 0.7 percent from the previous month, according the survey’s median estimate.
The MSCI Asia Pacific Index of regional shares climbed 1.4 percent today while the Standard & Poor’s 500 Index of stocks advanced 1.7 percent yesterday and the Thomson Reuters/Jefferies CRB Commodity Price Index rose 0.2 percent.
The New Zealand dollar gained for a second day versus the yen before data that may show employment increased by 2 percent in the fourth quarter from a year earlier, according to economists surveyed by Bloomberg News. The statistics New Zealand figures are due tomorrow.
Demand for the kiwi was also bolstered as Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole milk powder prices gained 7.6 percent from two weeks earlier, reaching the highest since June 1, according to auction results published today. A broader index of 17 export commodities rose for a fifth straight month in January to a record, ANZ National Bank Ltd. said yesterday.
“Rising commodity prices certainly portend a strong fundamental support for the New Zealand dollar,” said Mike Jones, currency strategist at Bank of New Zealand. “That’s something we expect to support a generally rising trend to the middle of this year.”
Benchmark interest rates are 4.75 percent in Australia and 3 percent in New Zealand, compared to as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
The dollar fell toward a two-month low against the euro before Federal Reserve policy makers begin a two-day meeting amid speculation accelerating U.S. growth won’t be enough to prompt a tightening of monetary policy.
The greenback weakened versus 12 of its 16 major peers before data this week forecast to show home prices dropped by the most since December 2009 while the U.S. economic expansion quickened. Australia’s currency slid after a government report showed consumer prices rose at the slowest pace in almost two years. The yen was near a two-month low against the euro as Asian stocks advanced amid signs the global recovery is building momentum, boosting demand for higher-yielding assets.
“The Fed still has concerns about high unemployment, very subdued core inflation and a generally fragile outlook,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “A reiteration of that may provide some headwinds for the U.S. dollar and U.S. bond yields.”
The dollar declined to $1.3661 versus the euro at 12:47 p.m. in Tokyo from $1.3638 in New York yesterday, when it touched $1.3686, the weakest level since Nov. 22. It traded at 82.45 yen from 82.53 yen. The U.S. currency fell to 0.9479 Swiss francs from 0.9491 after earlier reaching 0.9471, the least since Jan. 5. The euro was at 112.63 yen from 112.54 yesterday, when it rose to 112.91, the most since Nov. 23.
Fed Chairman Ben S. Bernanke will keep the benchmark interest rate unchanged at zero to 0.25 percent at the central bank’s meeting on Jan. 25-26, according to economists in a Bloomberg News survey. Unemployment, at 9.4 percent in December, is well above the 5 percent to 6 percent level that most Federal Open Market Committee members peg as their long-term aim.
Housing in the U.S. also continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through November fell 1.6 percent from a year earlier, the biggest decline since December 2009, according to a Bloomberg News survey before the S&P/Case-Shiller index is released today.
U.S. gross domestic product rose at a 3.5 percent annual pace in the fourth quarter, up from a 2.6 percent rate in the previous three months, according to the median estimate of economists surveyed by Bloomberg News before a Jan. 28 report.
“As the market remains wary that the U.S. dollar can transition to a growth currency, the fourth quarter GDP print will have to come in on or above expectations to support the U.S. dollar,” Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG wrote in a note to clients.
The euro rose against a majority of its most-traded peers before a European Financial Stability Facility bond auction that may garner increased demand.
The Luxembourg-based EFSF is selling as much as 5 billion euros ($6.8 billion) of five-year notes backed by guarantees from euro members, funds that will help pay for Ireland’s bailout. A successful sale of EFSF debt may prompt renewed calls for common European securities. While backed by most of the same nations that would be involved in a euro bond, the EFSF’s securities have achieved AAA ratings through credit enhancements designed to boost their appeal and keep down yields.
“We expect demand to be strong, as there is a shortage of AAA paper in Europe,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York wrote in a note to clients. The euro’s advance yesterday “will embolden the short-term speculators and suggest scope for another two cent advance,” he wrote.
The MSCI Asia Pacific Index climbed 1 percent before reports today that may show French spending rose a second month and Spanish producer-price inflation accelerated. A composite index based on a survey of euro-area purchasing managers in the manufacturing and services industries rose to 56.3 in January, the highest in six months, from 55.5 in December, Markit Economics said yesterday in an initial estimate.
‘Better’ European Data
“The data certainly looks to be doing much better not only in the U.S., but also in Europe,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “At the moment, risk appetite is ‘on’ and the yen typically doesn’t perform too well. If you look at the price action over the past week, the market is preferring the euro versus the greenback.”
Consumer spending in France gained 0.3 percent in December from November, when it rose 2.8 percent, a Bloomberg News survey of economists showed before the national statistics office Insee report. Prices of goods leaving Spain’s factories, mines and refineries climbed 5.0 percent in December from a year earlier, compared with 4.4 percent in November, a separate survey showed before the National Statistics Institute report.
The Australian dollar declined for the first time in three days after government figures showed consumer prices rose 0.4 percent in the fourth quarter, compared to the median estimate for a 0.7 percent gain. The so-called Aussie fell 0.3 percent to 99.49 U.S. cents and 82.03 yen.
The euro traded near a two-month high against the dollar and the yen before a report that economists said will show new industrial orders in the 17-nation region quickened in November.
The single currency was close to the strongest in two weeks versus the pound after European Central Bank President Jean- Claude Trichet said that policy makers will “closely” monitor energy and commodity prices, signaling possible higher interest rates. Australia’s dollar fell toward a seven-week low against the greenback after a government report showed producer prices rose the least in a year.
“Eurozone rates are higher versus the U.S. and the countries that were a cause for concern have rallied strongly,” said Tony Allen, global head of currency trading in Sydney at Australia & New Zealand Banking Group Ltd., Australia’s third- largest lender by market capitalization. “We’re in a bull move for euro.”
The euro traded at $1.3605 as of 1:35 p.m. in Tokyo from $1.3621 last week in New York, after advancing to $1.3647 earlier today, the strongest since Nov. 22. The single currency was at 112.59 yen from 112.48 yen, after climbing to 112.71, the highest since Nov. 23. The euro bought 85.22 British pence from 85.13 pence, after rising to 85.31, the most since Jan. 5. The dollar was at 82.77 yen from 82.57.
Industrial orders in the euro area rose 1.9 percent from the prior month, when they gained 1.4 percent, according to a Bloomberg survey before the report today. A composite index based on a survey of euro-area purchasing managers advanced to 55.6 in January from 55.5 in December, a separate survey showed before today’s data from Markit Economics.
Trichet this month toughened his rhetoric on inflation after it accelerated to 2.2 percent in December, breaching the ECB’s 2 percent limit for the first time in more than two years. The change in tone prompted some economists to bring forward forecasts for rate increases and helped drive the euro more than five cents higher against the dollar since Jan. 12.
“We are profoundly attached to our mandate,” Trichet said in a Wall Street Journal interview in response to a question on whether his Jan. 13 comments were over-interpreted. “Clearly, in particular on the side of energy and commodity prices we have a number of developments that we will continue to monitor closely.”
Australia’s currency fell against most of its major counterparts after the statistics bureau said producer prices climbed less than economists forecast.
Prices paid to producers rose 0.1 percent in the fourth quarter, compared with the median forecast for a 0.5 percent gain. The statistics bureau will publish its consumer price index tomorrow. Today’s figures cover a period before floods devastated parts of northeastern Australia.
“A similar low-inflation picture is likely to get repeated in consumer prices,” said Adrian Foster, Hong Kong-based head of financial-market research for Asia at Rabobank Groep NV. “I’d look for a sell-off in the Aussie toward the 97.60 cent area.”
Australia’s currency dropped 0.2 percent to 98.81 U.S. cents, after declining to 98.04 cents on Jan. 12, the lowest level since Dec. 9.
The pound fell against the dollar, paring this month’s gain, before a government report that economists said will show U.K. economic growth slowed last quarter.
Sterling has strengthened 2.2 percent this month after inflation moved further above the government’s 3 percent limit, spurring bets the Bank of England will boost rates sooner than previously thought.
Gross domestic product rose 0.5 percent, compared with a 0.7 percent increase in the third quarter, according to economists in a Bloomberg survey before tomorrow’s report.
“The markets are a bit premature in expecting the Bank of England to hike rates anytime in the next few months,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole CIB, said in an interview with Bloomberg Television. “That might just see a little more downside risk to sterling.”