Talking Points

??? Japanese Yen: Treads water in quite trade
??? Euro: Better IP numbers have little impact
??? British Pound: MP and IP weak BOE holds
??? Canadian Dollar: Employment and Ivey PMI on tap

Aussie At 10 Year Highs Canada Creates 5 Times As Many Jobs as Forecast

Trading in Asia-Pacific and early Europe today was inordinately quiet as many dealing desks began to empty out ahead of the long Easter holiday weekend. The Japanese calendar was barren but Australian data continued to show strength as Cashcard retail index rose another 1.1% over the month prior. The Aussie catapulted to 8209, hitting a 10 year high before profit taking pushed the unit below the 8200 level once again. It appears that barring some unforeseen geo-political event the RBA is almost certain to raise rates another 25bp in May, and that assumption has been the driving force behind the Aussie rally. However, as we asked yesterday, with the unit having risen so high so quickly and with rate hikes already factored into the price, how much further can the Aussie advance? One possible source of new strength is the price of gold which reached $672.75 in today??™s trade. Australia which is the second largest exporter of gold, benefits greatly from any appreciation in the price of the yellow metal, and if gold does challenge the $700 barrier, the Aussie may be pushed higher still. Nevertheless, given the unit??™s extensive up move we still contend that it is due for a correction sooner rather than later.

In UK, the BOE left rates unchanged. The move was expected by the market, but the outlook for the currency was marred by very poor manufacturing production data which fell for the second consecutive month. The slowdown amongst UK producers may be attributed at least in part to the appreciating pound and the news introduced an element of doubt into the belief that BOE will raise rates at its next meeting in May.

There was no such problems in the Euro-zone where German Industrial Production rose 0.9% as the region??™s exporters continued to operate on all cylinders. The divergence in interest rate expectations helped to rally the EURGBP cross to a high of 6790 as traders considered a May ECB rate hike a done deal while withholding judgment on the BOE

Finally, Canadian employment data which was released early due to the holidays, surprised to the upside with jobs rising to a whopping 54K vs. 11K projected. The number was five time higher than expectations as the country generated the most Q1 jobs since 2002. The news many prove beneficial to the loonie if it forces the BOC to reassess its neutral stance on monetary policy. However, with Canadian economy inextricably linked to the US, traders were uncertain if this release by itself would convince the Central Bankers in Ottawa to act anytime soon, and after the initial adjustment higher the loonie tread water as the market awaited US jobs data tommorw.