Retail Sales Improve!
By Mike Conlon | March 12, 2010
All eyes were on the US retail sales figures, as the US consumer represents some two-thirds of US GDP. There was speculation that bad weather would affect this number, causing it to be lower than expected. Well, that hedge turned out to be unnecessary, as there was a negative expectation of -.2%. The number came in much better than expected, at + .3%, which is positive growth as opposed to a negative expectation. So expect stocks to rally higher, but be wary of the correlation of “stocks up, dollar down” as some in the market may feel that this could have a material impact on US interest rate policy.
In other news, Canadian employment figures came in better than expected and Japanese Finance Minister Kan used the dreaded “I” word—as in intervention, which readers of this blog know is not totally unexpected.
In currencies this morning:
Aussie (AUD): The Aussie is higher this morning as investors are seeking yield as economic conditions appear to be improving, particularly in the US. No real news but the Aussie has made one attempt at .92 vs. USD and could challenge 2010’s high of .932 in short order.
Kiwi (NZD): Retail sales figure came in at a better-than-expected .8%, showing signs that domestic demand in New Zealand is improving. This bodes well for their economic story but we shouldn’t expect any rate hikes until mid-year as the policy meeting told us earlier this week. However, should inflation start to pick up, we could see a surprise hike earlier than expected.
Loonie (CAD): Good news out of Canada as the jobless rate fell to a 10-month low, falling to 8.2%. The Loonie is higher across the board as hopes that economic recovery is taking hold. According to an RBC analyst, the Bank of Canada is, “running out of arguments against keeping rates low”. The Loonie currently buys 98.35 US cents, and the Loonie could be at parity with the Dollar for the first time since July 2008.
Euro (EUR): The Euro is mostly higher this morning, as European Industrial outputs expanded 1.7%, the largest gain in almost 20 years. The Euro challenged 1.38 vs. USD and EU President Junker argued that the Euro zone needs new tools to be able to combat future crises.
Pound (GBP): The Pound is higher this morning, extending yesterday’s rebound. Reports are that the sell-off in the Pound has been excessive, as house prices in the UK rose at the fastest pace in 7 years, showing that the economic recovery may be taking affect. The Pound is at 1.514 vs. USD.
Dollar (USD): The Dollar is lower vs. all but the Yen as retail sales figures came in MUCH better than expected, as I mentioned above. Consumer confidence figures are due out at 10AM EST, but don’t expect that to have a material impact on today’s action. Other reports are that President Obama wants to nominate Janet Yellen as Fed Vice Chair. Yellen is known to be dovish, meaning that she is not an inflation hawk. This could mean extended zero interest rate policy as the government attempts to inflate their way out of debt on the backs of consumers, who will be forced to pay higher prices for everything. Stay tuned.
Yen (JPY): As I’ve mentioned before, Japan is not adverse to using intervention as a tool to keep Yen from strengthening, and earlier today Finance Minister Kan confirmed this. It is likely that yen will weaken as the government hopes to stimulate exports to improve their economy. It will be interesting to see how this plays out and if the Bank of Japan has enough muscle to fend off risk-aversion plays should global economic recovery falter.
As you can see, there can be different market responses to good economic news. One could make a cogent argument for either Dollar strength or weakness based on today’s sales figures. Inflation hawks will claim this means that the Fed should be raising rates; while doves say the economy is still too fragile and investors should seek yield elsewhere.
Regardless of which way the Dollar moves and its affect on other currencies, this is good news for the US economy.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Which Way to Go?
By Mike Conlon | March 11, 2010
As I mentioned yesterday, the currencies are now seemingly beginning to shed the risk on, risk off labels and are starting to trade more on individual fundamentals. While I don’t want to completely abandon risk themes, I’m not going to be so quick to dismiss market movement as risk-taking or risk-aversion.
That makes it a little easier when we have mornings such as today which are a bit of a mixed bag. I just watched the Aussie go from slightly positive to slightly negative; and the Pound and Euro are higher.
In news that is important to the global economy, inflation in China reached a 16-month high which should cause monetary tightening. This means that there could a decrease in global demand.
As I am typing this, the US Initial Jobless Claims numbers came out and while the news was expected to have a benign market impact; it has flipped the market into risk aversion mode. Maybe those fundamentals aren’t that important after all.
Let’s take a look at the individual currencies:
Aussie (AUD): The Aussie started the morning in positive territory but then slipped to negative as risk aversion is starting to steer the market action. There was “disappointing” news earlier as Australia reported the slowest amount of job gains in 6 months and unemployment stayed steady at 5.3%. This may give the RBA a little bit of wiggle room at the next interest rate meeting and they may not have to raise rates. I think it’s slightly amusing that this news can be viewed as negative, as just about every other economy would do anything to have such a “problem”.
Kiwi (NZD): The Kiwi on the other hand started the morning negative and has stayed there now that risk aversion has been added to the mix. The central bank left rates unchanged at 2.5% as was expected, but quashed hopes of a rate hike before mid-year. Apparently falling housing prices and weak consumer spending are contributing to a slower than expected economic recovery.
Loonie (CAD): The Loonie is down this morning on what I’m going to deem the “reverse Midas touch”. Apparently the Bank of Canada appointed a Ben Bernanke disciple as deputy governor to potentially change the way the central bank looks at interest rate policy. As of right now, the bank has a mandate which attempts to keep inflation at 2%, but they may want to change to a new system that targets prices rather than inflation. All the market is seeing at this point is that Canada may get wrapped up in the nonsense that is US interest rate policy and that doesn’t bode well for higher rates. Add that to lower oil prices, down slightly from yesterday’s move to above $82, and risk aversion.
Euro (EUR): The Euro is mixed this morning as Greek labor strikes (riots) are causing a backlash against austerity measures. In the meantime, the ECB maintains a cautious outlook and reiterated that interest rates are at appropriate levels.
Pound (GBP): The Pound is higher this morning halting a three-day slide and is trading back to 1.50 vs. USD. This much needed rest from selling came about as the Bank of England’s quarterly inflation attitudes survey showed that consumer price expectations rose to 2.5%, its highest reading since 2008.
Dollar (USD): The Dollar is higher this morning after the 8:30AM Initial Jobless Claims report which came in higher than the expectation. While the number 462K vs. the 460K expectation is not that significant, the market was clearly expecting a better figure and this provides pause to the notion that the US economy is in full recovery mode. Stocks in Europe sold off on this number as traders ran to the safety of dollar and yen.
Yen (JPY): Japanese GDP was revised lower to show growth rose at 3.8%, slower than the 4.6% reported in preliminary figures last month. The Yen is higher on, yep; you guessed it, risk aversion.
As you can see from today’s entry, things in the forex can change pretty quickly. That’s why is ultra-important to be aware of news events. I should have known better than to tempt the risk gods.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Fundamentals Do Matter!
By Mike Conlon | March 10, 2010
Now that the fears of global collapse have abated—for now—the markets have returned to heavier scrutiny on the fundamental numbers being reported in various countries. It is times like these that remind traders that indeed the fundamentals do matter. The longer the global economy can sustain itself without Armageddon taking place, the more and more traders will focus on specific stories and not overall risk themes.
So, while one might look at this morning’s action and be inclined to say that today is risk-taking because commodity currencies are higher, a more appropriate reaction would be that are actually both good and bad stories out there which are driving individual currency pairs.
More specifically, in currencies:
Aussie (AUD): One of the good economic stories out there is coming out of Australia which has had good gains as of late. Tomorrow they will be reporting their employment figures, which are expected to gain for the sixth straight month. In fact, the economy is buzzing along so well there that there is no an expectation that they may raise the benchmark interest rate again next month. The Aussie is in a clear uptrend and I expect it to test 2010 highs very soon.
Kiwi (NZD): The Kiwi is also another good economic story, though not as strong as the Aussie. While the interest rate decision due out tomorrow is expected to be unchanged, overall Asian recovery will benefit the Kiwi. The most important take-away from the rate decision will be the language used to give a clue as to a timeframe for further hikes. And should they surprise the market with a rate hike (highly unlikely), then lookout above!
Loonie (CAD): The Loonie is just kind of hanging out today, with no real news on tap in Canada. Oil is higher so the Loonie is up; and also riding the coattails of the Aussie and Kiwi. The only anomaly is USD/CAD, as there is dollar strength this morning.
Euro (EUR): The Euro is mixed this morning. On the one hand, now that the risk of a Greek default is mitigated, the focus is back on the fundamentals in the Euro zone. On the other, news out of Germany is that German exports are down, but German CPI is up. Traders are using this opportunity to cover some EUR/USD shorts, but otherwise the Euro is down vs. the commodities and up vs. the rest. I expect EUR/USD to be range-bound for a bit.
Pound (GBP): Another tough day for the Pound, which would be down across the board if not for the Yen. The Industrial production figures and manufacturing came in negative, marking the first decline since last August. This is likely to keep rates low in the UK for an extended period. Meanwhile, the BOE’s Adam Posen stated that he hopes their bond purchase plan “has done it” with regard to stimulating the economy but he didn’t rule out further quantitative easing.
Dollar (USD): There’s a bit of optimism about the dollar this morning as economic recovery appears to be going faster in the US than in Europe and Japan. As risk of a global collapse is lessening, traders are looking more toward the fundamentals. So the expectation is that we may see a rate hike in the US sooner than in Europe or Japan. However, don’t be surprised to see Dollar weakness should commodity inflation pick up.
Yen (JPY): The Yen is down across the board this morning in advance of the Japanese GDP report due out tomorrow as fears of deflation are warranted. Combine this with good news from the commodity currencies, higher commodity prices, and “risk-taking” and you have a recipe for Yen weakness. Carry traders are gaining more confidence and the Yen is the funding currency of choice.
As you can see, when global economic conditions become more stable, market fundamentals return to center-stage. Under “normal” conditions, currencies from the best economies will flourish, while those not doing as well will be sold.
And that’s the basic idea behind forex trading; that you want to own the strong currencies and sell the weak ones, hopefully picking up interest along the way!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Risky Business!
By Mike Conlon | March 9, 2010
From an outside perspective, some might be shocked at how quickly the market can flip-flop from market euphoria to fear on what seems almost like a daily occurrence. It’s like John Kerry on steroids! I kid, I kid. But on a more serious note, the market can wipe out days of gains in a single session as risk aversion can pop up for any number of reasons. Sometimes it’s justified; at other times it isn’t.
Case in point: this morning. The market had been moving along nicely then all of a sudden decides there’s too much risk in the world economy and then wham!—you get a market sell-off! What has changed so much from last Friday, to yesterday, to today?
Frankly, not much. You see, the financial markets are much like an expedition, venturing slowly into the unknown and then quick to retreat at the first sign of trouble. So what is that trouble today?
Damned if I know. Part of the role of market pundits is to “make sense of the chaos”. Most of the time I find these attempts to be lazy and disingenuous. So the top 5 I’ve heard this morning are (in no particular order): Greece, lower stock earnings, US healthcare legislation, the push for Chinese Yuan appreciation, and UK elections. And if you don’t believe any of these, I’ve got one of my own for you: it’s a technical pullback.
So be wary of attempting to try to “figure” the market out, and be sure to trade what you see and not what you think you know.
In currencies:
Aussie (AUD): The Aussie has pulled back from near its 2010 highs as risk aversion is dominating the morning market action today. However, the sell-off is not as bad as reports came in that Australian businesses are actively looking to hire and the business confidence index came in higher, prompting the market to believe that yet another rate hike may be coming next month.
Kiwi (NZD): The Kiwi isn’t faring as well as the Aussie, as yesterday’s big winner is now one of today’s bigger losers. Tomorrow’s rate decision and language may prove to be more exciting than previously expected, as the expectation is that it is the slimmest of slim chances that they will raise rates.
Loonie (CAD): The Loonie is lower this morning primarily on lower oil prices that are down roughly 1.5%. This snaps 7 days of gains, in what can be viewed as a welcome pause. This appears to be mild risk aversion so the Loonie is mixed.
Euro (EUR): The Euro is lower this morning across the board as stock earnings are lower and the ECB is saying that it potentially could accept lower rated bonds as collateral against new loans. Also the call for regulation on credit default swaps (CDS) and the news of the “lender of last resort” card being played all highlight the problems for the Euro zone. Notice I didn’t say Greece once—oops! Just did.
Pound (GBP): The Pound is lower this morning as reports came in that the UK housing market may be slowing as fewer price gains occurred than what was expected. This comes in advance of the UK GDP estimates due out tomorrow which could set the tone for UK rate policy going forward.
Dollar (USD): The Dollar is higher this morning on risk themes as stock market futures appear to set to open lower, though it not a certainty that they will remain that way all day. Look for some volatility as the markets trade back and forth, and definitely do not a rule out a reversal to the upside for equities which could be dollar-negative.
Yen (JPY): The yen is higher this morning on general risk themes and speculation that Japanese companies are repatriating profits before the end of the Japan fiscal year which is in April. This essentially means that demand for yen is higher as companies sell foreign currencies to buy yen, thereby increasing demand. This could be the reason why the market perceives that today is a risk-aversion day.
As you can see, there can be many reasons why currencies move outside of the normal risk themes which can disguise what may be really going on in the marketplace. When traders see these anomalies, they should be prepared to react. It would not surprise me today to see US dollar weakness, even though then yen may stay strong. Whether or not that is enough to push the US stock market and commodities higher remains to be seen.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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France to the Rescue?
By Mike Conlon | March 8, 2010
Bet you never thought you’d hear that unless it was the punch-line to some joke. All kidding aside, this past weekend French President Sarkozy gave Greece his support and claimed that if Greece was allowed to fail, then the Euro would be “pointless”.
I’m not sure how this is going to sit with Germany, who I’m sure don’t appreciate France undermining its stance. For all the talk of Greece leaving the Euro zone, what if Germany was the one to up and go? I don’t see this as a likely scenario and see this as more of “good cop, bad cop” tag-team effort to keep the Euro from losing further value. At the end of the day, German banks have huge exposure to Greece so it is definitely not in their interests to see Greece fail. As of right now, for all the fear of monetary bailouts, the only thing on the table right now is allowing Greece to piggy-back on the good credit of Germany. Meanwhile the EU is working to create a lender of last resort and limit credit default swaps to help prevent another potential catastrophe.
This is a pretty light week for news, which usually puts me on edge to “expect the unexpected”. Barring any unexpected negative news, I expect to see a continuation of last Friday’s market action as moderate risk-taking should have the upper hand.
In the currencies:
Aussie (AUD): There is no real news for the Aussie this week until Thursday, when they report their unemployment figures. Right now the Aussie is still the dominant currency and destination for carry trades. We’ll get a better idea of how the Aussie is going to fare going into Thursday but for now I expect the Aussie to move higher on risk-taking themes and commodity prices. The Aussie should hold short-term support at .91 vs. USD.
Kiwi (NZD): The big news of the week for New Zealand is the interest rate decision due out on Wednesday. The Kiwi is higher this morning as home prices have advanced for the fifth straight month in what some traders may feel is the onset of inflation. Personally, I don’t see a rate hike coming at this meeting so we’ll have to see how the market reacts but for now I expect the Kiwi to trade higher into the meeting on expectations of a rate hike and moderate risk-taking with the potential for those gains to be erased if the hike doesn’t happen. Stay tuned.
Loonie (CAD): The Loonie continues to “receive love” from the market as more and more people are starting to catch on to the economic story in Canada. A report out this weekend claimed that the Loonie to could surpass the Aussie as the majority of options bets placed on the Aussie/Loonie pair are for the Loonie to strengthen. While the Loonie may do better in the short-run as traders begin to expect a series of rate hikes, don’t lose sight of the impact of the interest rate differentials, as the Aussie is currently yielding 4% and the Loonie is yielding .25%.
Euro (EUR): As mentioned the Euro got a boost from Sarkozy’s comments this weekend, but is trading marginally lower than the commodity currencies. Financial stability is the name of the game for the Euro and I expect it to trade sideways for a while as the drama unfolds. This is not the final word on Greece so I expect we’ll see it trade range-bound between 1.345 and 1.38 vs. USD depending on the “he said, she said” between Merkel and Sarkozy. Not to mention German CPI, which is due out on Wednesday.
Pound (GBP): The Pound is down against all but the Dollar and Yen, as mild-risk taking is the flavor of the morning. On Wednesday we’re going to get the estimate of Feb. GDP and the Industrial production and manufacturing figures. Should those numbers come in weaker than expected than we could see the Pound re-test last week’s lows.
Dollar (USD): The major thing to look at this week is going to be Friday’s retail sales figures. This is going to give a clue as to the behavior of the US Consumer, and well as the confidence figure due out the same day. The US consumer represents some 70% of GDP so if these numbers are better than expected than it could compel further risk-taking and dollar weakness. Leading up to those numbers, we have a couple of Fed speakers out to entertain us with their jaw-boning of the dollar. Remember, forget what they say, and watch what they do!
Yen (JPY): Japanese GDP is due out on Wednesday but frankly, the Yen is going to trade on risk themes this week. Still considered the top funding currency for carry trades, I can’t foresee a situation that would cause this to change barring an interest rate hike which is unthinkable.
So, for a week with surprisingly little news, it seems kind of busy. Watch out for the British GDP figures on Wednesday to be a key point, and this could be the week when the Loonie jumps the Kiwi on the risk scale.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Employment Gains!
By Mike Conlon | March 5, 2010
In a scene out of the movie, Trading Places, all eyes were on the US Non-Farm Payrolls report this morning. In today’s version of the Frozen Concentrated Orange Juice crop report, the number game in at -36K jobs lost, vs. an expectation of -65K. The unemployment rate also held steady at 9.7%. So what does this mean for the market today? Well right now there is so much market volatility that it’s hard to get a good read.
This should be positive for risk-taking today as the number was just good enough to show economic progress, but not great enough to bring about talk of US interest rate hikes. However, anything can happen on NFP day so traders need to be on their toes! Just take a look at any chart at 8:30EST to see what I mean.
In currencies:
Aussie (AUD): No real news for the Aussie today as it is higher on risk themes and had a nice pop on the NFP report.
Kiwi (NZD): Same deal for the Kiwi as the Aussie, though it’s bouncing much higher as it has been a bit over-sold the last few days. Between Kiwi strength and Yen weakness, that pair is the largest gainer, up 2.18%.
Loonie (CAD): The Loonie is also higher, as the market has decided that risk-taking is the flavor of the day as the market digests the impact of the NFP report. Oil is also higher to just over 81, adding to Loonie gains.
Euro (EUR): What more can be said about the Euro at this point? The Greek crisis is center-stage, with Greek austerity measures angering its citizens, and the potential bailout and contingency plans upsetting the Germans. Quite the balancing act going on there. The Euro is down against all but the Yen.
Pound (GBP): Producer prices came in higher in the UK, and commodity prices are suggesting that they may be experiencing the start of inflation. The increase of 4.1% came in higher than the target rate of 3%, so it will be interesting to see how the BOE handles this situation. The Pound is mixed this morning.
Dollar (USD): I discussed the NFP report above but whether or not the risk-taking theme that has been pushed forward by the forex market continues will remain to be seen. Stocks are expected to see an initial bounce as the futures are higher. However, there is no improvement in the unemployment rate, so market bears may use this opportunity to establish shorts on signs that the economy may be stabilizing but is not improving.
Yen (JPY): The yen is weaker for the second day in a row as it appears as though the market believes the Bank of Japan will boost credit easing. So it appears as though the government may be winning the battle against the Bank of Japan which should weaken the Yen and make it even more attractive as the funding currency of choice for carry traders. It is down across the board this morning.
So while it appears that the market is in a risk-taking mood so far, don’t be so certain that it won’t change its tune by the end of the day. At some point, we are going to have to see actual good news, and not more “less bad”. Unemployment is still extraordinarily high, which will translate over to reduced consumer spending, which makes up some 70% of US GDP.
In my opinion, it would be a fool’s folly to continue to buy stocks and commodities on interest rate policies alone and not fundamentals. At some point this will catch up to the market. It always does.
Good weekend to all!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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No Interest Rate Hikes!
By Mike Conlon | March 4, 2010
As expected, neither the BOE nor the ECB raised interest rates today with the ECB citing fiscal problems in Greece and the BOE putting a hold on further quantitative easing to see if previous measures have been enough.
In other news, US initial jobless claims came in as expected, though all eyes are on tomorrow’s Non-Farm Payrolls report. I’m seeing some mild risk aversion this morning, and again am seeing Canadian dollar strength. Commodities are flat after seeing some gains from the previous days.
In currencies:
Aussie (AUD): The Aussie was down earlier but looks like a rebound may happen today, as news of a narrowing trade deficit and an expected US employment report may outweigh concerns out of the UK and Euro zone.
Kiwi (NZD): The Kiwi is lower this morning as it looks like carry traders are dumping the Kiwi in favor of the Loonie in addition to mild risk-aversion.
Loonie (CAD): The Loonie continues to advance as traders speculate that the economic situation in Canada is in good enough to begin raising rates. The Loonie is fast approaching the 1.02 level to USD and we could see parity by mid-year if interest rates begin to rise in Canada.
Euro (EUR): The sale of Greek bonds is going well this morning as higher yields are attracting investors and the issue is over-subscribed. In the meantime, there is equal outrage in both Greece and Germany although the Germans haven’t taken to streets like the Greeks have—yet. What is happening in Greece is a perfect example of what happens when a government grants its citizens entitlements and then has to take them away because they can’t afford it. I hope the US administration is taking note. Interest rates were held steady and the ECB has decided to not remove economic stimulus at this time.
Pound (GBP): Interest rates have been held steady at .5%, which comes as no surprise to the market. The BOE did make it clear that they will not increase bond-buying to help stimulate the economy. It is clear that the UK sees the need for deficit reduction so the BOE is content to play the “wait and see” game to see if earlier measure have taken hold. There is still increased fear that the UK could be headed for a slide back into recession, and the spring elections are also lingering as fears of a “hung parliament” could cause political non-action.
Dollar (USD): Initial jobless claims came this morning as expected and pending home sales are due out later this morning. We could see some volatility as traders position themselves for tomorrow’s NFP report. The Dollar is mixed this morning.
Yen (JPY): The yen is down across the board this morning as there is talk about a potential sales-tax increase coming from Finance Minister Kan. This would be the first increase in over 10 years and could be a sign that the fiscal situation in Japan is worse than expected. However, this may be a ploy to put pressure on the BOJ to increase bond-buying. Any way you slice it, the Japanese would like to have a weak currency to help exports, and the Yen has been on a tear as of late.
So European themes are dominating the market right now; and Japan is trying to keep the Yen from strengthening. Tomorrow’s NFP report is usually the biggest event for the currency market, as this will give clues as to where the US economy is or may be going, and what the economic response is going to be as a result. This could affect the risk outlook for the rest of the month for as the Dollar is the world’s reserve currency.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Top Performers!
By Mike Conlon | March 3, 2010
Forex System Selector (FSS) Top Performers!
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When investors select individual EAs to use, market conditions will determine how effective any one EA will be. If market conditions aren’t ideal, even the greatest strategies can have less-than-desired results.
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Greek Revival?
By Mike Conlon | March 3, 2010
No I’m not talking architecture this morning; I’m talking about the austerity measures Greece is proposing to undertake in order to satisfy the French and the Germans. Now if they can just keep their citizens from rioting in the streets they might just be able to pull this off. Meanwhile, the Euro is higher to 1.365 vs. USD.
Also higher this morning is the British pound, which is bucking a 6-day slide. Sort of like God, on the seventh day it rested! The Canadian dollar is higher in a continuation of yesterday’s news.
So this morning is sort of a mixed bag. More news driven than risk-oriented, it will be interesting to see if the currencies fall back in line.
In currencies:
Aussie (AUD): Australian GDP came in this morning a little bit higher year over year, though not gangbusters as we may have been lead to believe. While the economy has been moving along nicely and is well-positioned for growth, the lack of explosive growth means that we could see a pause to near-term rate hikes. The forex market can be so greedy at times! The Aussie is mixed this morning.
Kiwi (NZD): The kiwi is down today across the board and is trading near a 10-year low to the Aussie. It looks as though the market is attempting to re-define the Kiwi’s place in the “risk totem pole”. Nevertheless, the Kiwi economy is still on track and they do provide 2.5% interest, making it a good destination for carry trades. I think the market realizes that the economies of Australia and New Zealand are quite different, and the Loonie looks poised to replace the Kiwi, as traders speculate that rate hikes may be coming sooner in Canada then in New Zealand. This makes the Kiwi/Loonie pair the largest loser of the morning, down some 1.15%.
Loonie (CAD): The Loonie is benefitting this morning from yesterdays interest rate decision as the market is now starting to believe that Canada may be the next to raise interest rates. The Loonie is up across the board this morning.
Euro (EUR): The Euro is higher against all but the Loonie and Pound, as proposed Greek austerity measure are giving hope that the debt problem won’t spiral out of control. This is coming ahead of the Euro zone GDP report and interest rate decision due out tomorrow. Rates are not expected to change and any surprise to the upside on GDP would be viewed as positive by the market.
Pound (GBP): The Pound is higher this morning after consumer confidence figures came in better than expected. I’m not so sure why they are so confident but to each their own. Tomorrow is the BOE’s decision on interest rates and quantitative easing. Deficit reduction is a major priority in the UK so it will be interesting to see if they need to continue to stimulate the economy at the expense of increasing debt. Stay tuned!
Dollar (USD): The Dollar is down against all but the Kiwi as job cuts have fallen to their lowest levels since 2006. All this means is that employers plan on firing less people. They are still not in “hiring mode” so the “jobless recovery” continues as political uncertainty and Friday’s Non-Farm Payrolls report loom heavily over the market.
Yen (JPY): The Yen is mixed this morning, giving back some gains against the European currencies yet higher vs. the Aussie and Kiwi. As no real risk themes are presenting themselves today, the yen is benefiting from a little bit of carry trade unwind and it looks like some of that carry trade money is going toward the Loonie. No real news out of the region today besides a reading of higher worker earnings, which could help push domestic demand.
The markets aren’t always dominated by risk themes so it is really important to pay attention to the overall economic news for the most widely traded currencies. Slight changes can have large effects in individual currencies which can “break out” of the usual order. In these situations, there is great opportunity as sometimes the market is slow to catch on. My trumpeting of the Loonie over the last few weeks is one such example.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Australia Hikes!
By Mike Conlon | March 2, 2010
Aussie Rate Hike, Canada to Follow?
As expected, the RBA raised interest rates today .25% to 4%, as the economy there has been humming along. More hikes are expected throughout the year. Later this morning, the Canadian interest rate decision is due out. And while it is not expected that the rate will change, the Bank of Canada may provide clues as to when this may happen.
That’s the good. As for the bad, there’s no shortage of negative news coming out of the Euro zone and the UK. Potential political gridlock in the UK and the Greek debacle are weighing heavily on the Pound and the Euro. Commodities are also higher in what can be deemed mild risk-taking.
In currencies:
Aussie (AUD): The Aussie is higher this morning as the RBA did the expected and raised rates to 4% as economic recovery is more advanced than anywhere else on the planet. Having just reported a surge in business confidence and explosive jobs growth, there could be up to another 1% in rate hikes as the year moves forward, depending upon whether or not inflation picks up. As of right now, inflation appears to be within the targeted range, which could suggest a slowing of rate increases which is dovish. This is why the Aussie is showing modest gains today and not explosive ones.
Kiwi (NZD): Surprisingly, the Kiwi is down this morning as there are dovish outlooks on economic recovery and inflation appears to be muted. So while Australia is raising rates; New Zealand could be at a standstill for some time.
Loonie (CAD): The Bank of Canada rate decision is due out later this morning and though the market is predicting no change, there may be some language hinting of future rate hikes which may come sooner than expected. Fourth quarter GDP came in at 5% vs. and expectation of 3.3%, showing much faster growth. Inflation is also very close to the target rate which could cause earlier than expected action. The Loonie is the best performer this morning, higher against all heavily traded currencies. Because the forex market is forward-looking, potential rate hikes usually trump actual ones. This is why the Loonie is higher vs. the Aussie.
Euro (EUR): The Euro is mixed this morning, trading lower vs. the commodity currencies but higher against the rest. Germany is putting immense pressure on Greece to cut its deficit and is basically in charge of the Greek bond offering which makes them the “holder of the purse-strings”. These austerity measures aren’t going over too well in Greece, as strikes are scheduled which usually lead to some sort of rioting. Greece has a tough pill to swallow and the citizens there don’t want to take their medicine. Stay tuned!
Pound (GBP): The political wrangling is heating up in the UK as fears that a “hung Parliament” may prevent the UK from tackling their economic deficit. With elections coming in a few months, the speculation that there will be no majority party could induce political grid-lock which will prevent anything from getting done. Does this sound familiar? It will be interesting to see the outcome of these elections, and whether the British actually vote to have the punch bowl removed from the party. The Pound is down across the board. Again.
Dollar (USD): USD is down against all but the Pound, as the big news in the US is going to be Friday’s Non-Farm Payrolls report. Expect the Dollar to trade on risk themes until then.
Yen (JPY): Japanese yen is higher this morning as unemployment fell unexpectedly to 4.9% and household spending increased for the sixth straight month, showing signs that domestic demand may be improving. However, yen strength is negative for exports and at this point it doesn’t seem like further expansion is in the cards. Let’s see if they decide to rein in government spending to tackle further debt, or provide quantitative easing to try to keep yen low.
As you can see, some economies are doing much better than others and those that look to decrease their debt and may be targeted lower in the short-term, but may reap the benefits in the long-term. Right now, look for the commodity currencies to lead the pack provided there is no global shock to the system.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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