NEWS / Foreign Exchange

The U.S. dollar extended its losses against the world??™s major currencies

The U.S. dollar extended its losses against the world??™s major currencies after U.S. data showed durable goods for February came in lower-than-expected. Orders for durable goods climbed 2.5% in February as defense and non-defense aircraft orders bounced back following big declines to start off the year, the Commerce Department reported Wednesday. Excluding transportation orders, however, orders for big-ticket items declined by 0.1% last month, the agency's data showed. Economists were expecting durable-goods orders to rise by 3.8% in February after falling by a revised 9.3% in January. The data was yet another piece of evidence that the US economy is faced with significant growth challenges in the near-term, which could have implications on the future level of interest rates. The dollar??™s losses solidified after Federal Reserve Chairman Ben Bernanke said uncertainty about the U.S. economy has increased, stating that near-term prospects for the U.S. housing market are uncertain and that developments in the sub prime mortgage sector have raised more questions than answers.
   
The Euro took its cues from the US dollar??™s activity overnight, trading slightly higher amid the release of US durable goods data.
     
The British pound weakened overnight after data showed a record UK current account deficit in the fourth quarter and a surprise downward revision to growth. The pound was already falling before the data, especially against the yen, as the U.S. navy quashed rumors of a conflict in the Gulf and falling stock markets following weak U.S. consumer confidence data led investors to unwind sterling-supportive carry positions. In other news, Britain's current account deficit hit a record 12.7 billion pounds in the final quarter of 2006, up from 10.5 billion in the third quarter. That was equivalent to 3.8 percent of gross domestic product, its highest since the second quarter of 1990. Official data also showed the UK economy grew slightly slower in the fourth quarter than previously thought, at a quarter-on-quarter rate of 0.7 percent. The previous estimate was for 0.8 percent growth.
      
The Japanese yen rallied across the board, benefiting from the sell-off of high yielding currencies in favor of the Asian currency. The yen also received support from locals selling proceeds from European bond redemptions and the approaching Mar 30th fiscal year-end. The carry trade phenomenon remains firmly in place however, with most traders expecting the yen to weaken again in the near-term.

The Canadian dollar weakened slightly versus the U.S. currency on Wednesday as oil prices gave back much of their sharp gains as rumors that Iran fired at a U.S. naval vessel in the Persian Gulf were denied. Oil prices had spiked $5 a barrel late on Tuesday to a six month high above $68 before retreating back to $65 a barrel as the United States dismissed talk that a U.S. naval vessel had clashed with Iran. While higher oil prices are generally a positive for the resource-linked Canadian dollar, fear about what a conflict could imply for global economic growth and demand for other commodities largely overshadowed the benefits.   
  
The Australian dollar gave up additional gains against the U.S. currency as investor??™s unwound riskier bets amid more volatility on regional stock markets, with the local currency dropping below support at 80.50 cents. Markets were already jittery over geopolitical risks, particularly Iran's standoff with the West, but volatility on China's main stock market index reminded investors of the week-long global sell-off in equities four weeks earlier. The Aussie rose to a fresh 10-year high of $0.8109 on Tuesday, underpinned by speculation Australia's central bank was poised to raise interest rates to fight inflation. The main Aussie/U.S. dollar pair was also weighed down by selling on the cross rate against the Japanese currency as investors pared bets on borrowing yen cheaply to invest in high-yielding currencies, such as the Aussie and kiwi. Like the US dollar, Aussie investors turn to Federal Reserve Chairman Ben Bernanke's testimony later in the day for the U.S. economic outlook.
              
The Mexican peso extended its losses against the dollar this morning as concerns mounted about the health of the economy in the United States, Mexico's main trading partner. U.S. Federal Reserve Chairman Ben Bernanke said uncertainties surrounding the U.S. economic outlook have increased in recent weeks, causing a sell-off in Mexican equities which extended to the peso.

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