NEWS / Foreign Exchange

USD gains rapidly against JPY as Equity markets strengthen

Bullish momentum takes NZD through 0.7000

The NZD traded quietly yesterday, with the only significant move being a rally towards 0.6980 as the JPY weakened on the back of a rumoured nuclear accident. However, when this was discounted, the currency soon returned back to 0.6960 albeit with a bid tone. Overnight strength in the AUD saw the NZD crawl higher, and after a couple of attempts to hold above 0.7000, the currency managed to break though, opening around 0.7020 this morning

Growing rate hike expectations support AUD

The AUD retained a bullish tone yesterday, with the markets still focussed on the increased likelihood of an interest rate hike in the wake of last Friday??™s hawkish inflation related comments by RBA Assistant Governor Malcolm Edey. Some initial selling was noted in the wake of news that China has raised interest rates during the weekend, however bullish sentiment soon overrode this as the currency rallied toward 0.7950. Good buying interest in the overnight session saw the currency marked sharply higher and, after having briefly traded above 0.8000, opens just short of that level this morning.

USD gains rapidly against JPY as Equity markets strengthen

Early trade yesterday saw USD/JPY dip to a 116.25 low as the market cautiously awaited the Asian equity market open following the weekend??™s 27bps increase in Chinese interest rates. The USD subsequently gained rapidly, however, as Japanese stocks opened firmer and an anecdotal news headline recounting a nuclear plant accident 16 years ago was misinterpreted as current. USD/JPY quickly added over 1 yen to touch 117.45. Equity markets in Europe also strengthened, with M&A activity restoring investor risk appetite and encouraging a return to high-yielding currencies. The euro posted an intraday high of 1.3325, before dipping back below 1.3300 while Sterling posted a 1.9474 high before drifting back to 1.9435.

US NAHB homebuilding sentiment fell to 36 in March, from a downwardly revised 39 in February. This is the first decline in sentiment since September 2006, and likely reflects concerns that buyers will find it harder to obtain loans after the wave of defaults in the sub-prime mortgage market.

Canadian wholesale sales fell 0.5% in January, slightly better than market expectations. The fall was due to weaker deliveries of automotive products and household goods.

UK house prices accelerate in March. Annual house price growth lifted from 11.5% in February to 12.2% in March as a shortage of listing offset higher interest rates. The data suggests that the housing market remains buoyant despite three interest rate hikes since August last year, and adds to the case for a further rate hike by the BoE.