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US Dollar In Focus!
By Mike Conlon | April 14, 2010
This morning, all eyes are on the US economy as the Advance Retail Sales Figures and US CPI figures are due out. By the time I am finished with today’s piece, these numbers will have hit the market. In addition, Fed Chairman Bernanke is expected to speak at 10AM EST to the Joint Economic Committee and some in the market are predicting that a change in the “extended period” language could occur here ahead of the next FOMC meeting.
Speculation here in the US is that the economy is heating up and that the Fed may be ready to move on rates, however the commodity inflation and stock market gains that we have been seeing may not be an overall indicator of economic strength as unemployment still hovers around 10%.
The market is seeing some early risk-taking ahead of these figures as recent stock earnings have been a little bit better than expected.
In the forex market:
Aussie (AUD): Australian consumer confidence figures came in near 3-year highs as the Aussie economy keeps chugging along despite the recent rate hikes to help temper growth. The Aussie is also higher on risk-taking as both commodities and stock futures are higher to start the morning.
Loonie (CAD): The Loonie has now broken through parity to the US dollar and is worth more as the dollar is worth .997 Canadian dollars. Oil prices are higher this morning to just under $85 and the overall risk-taking sentiment is supporting the Loonie.
Kiwi (NZD): The Kiwi is mostly lower this morning as it benefits from the overall risk-taking themes, but is hampered by a disappointing retail sales figure that may show that economic recovery is not as strong in NZ as it is in other economies. Retail sales were down .6%, showing the second decline in 3 months.
Euro (EUR): The Euro is mixed this morning as industrial production came in better than expected and overall risk appetite is higher. However, the aftermath of the Greek debt offering is still lingering with comments from Germany’s Finance Ministry trying to re-assure the market that Greece will not need additional funds above and beyond the bailout package. Now eyes are starting to turn toward Portugal and the measures they must take. Stay tuned.
Pound (GBP): The pound is higher this morning with no major news on tap until next week’s release of the policy meeting minutes which are expected to show a dovish stance. As long as inflation stays within the targeted range, expect no change in interest rate policy. In addition, the elections are less than a month away so expect political polling to affect the Pound as we near May 6th.
Dollar (USD): As promised the CPI figures and Retail sales figures came out at 8:30 EST. Retail sales came in better than expected at an increase of 1.6% vs. the expectation of 1.2%. In addition, the CPI came in just slightly below expectations at 2.3% vs. an expectation of 2.4%. The Dollar has rebounded a bit paring back earlier losses and moving a bit higher going into Bernanke’s speech later this morning. Expect the market to take its direction from that speech as he could use it as an opportunity to prepare the markets for potential rate hikes down the road. If he leaves everything status-quo, then expect the market to resume risk-taking which would weaken the Dollar further.
Yen (JPY): Today the Japanese yen is just along for the ride as risk-taking on speculation that the global recovery is well under-way is causing Yen weakness as yield-seeking investors’ effect carry trades. The Yen is at 93.5 vs. USD and could re-test 95 very shortly with dovish comments from Bernanke.
So today it’s all about the Dollar and whether or not it’s going to remain game-on for risk-taking. Bernanke’s comments should set the tone for the rest of the day and I expect no change to the language regarding rates.
While economic figures may be improving both here and abroad, the major problem with the US economy is unemployment and the housing market. Higher interest rates would not bode well for either problem so I expect Bernanke to keep rates as low as possible for as long as possible.
However, if better than expected earnings keep up and companies begin hiring again, then he may have some wiggle room to move. I think he is definitely trying to encourage inflation; so it’s still too early to hike in my opinion. Keep an eye on commodity prices for clues as to how high inflation may get.
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