USD index hits the lowest level since March 2005

- Kiwi retail sales surge in March, increasing expectations for a rate hike at April 26 meeting: (NZ FEB RETAIL SALES MOM: 1.9% V 0.5% expected, Prior retail sales revised to 0.7% from 0.5%) The RBNZ governor Bollard recently said that another rate hike may be needed unless consumer spending slows down. But consumer spending surged during March on the back of strong labor market conditions and increasing wages (Kiwi wage growth through 2006 accelerated by a record 3.2%). Analysts were quick to point out that the data pre-dates the March rate hike and as such has very little forward-looking content, except to help justify the case for the March hike. After today's retail sales figure, markets price in a 60% probability of a 25bps rate hike this month vs. 40% priced in yesterday and 22% priced in at the end of last meeting (index compiled by Credit Suisse based on trading in overnight interest-rate payments)

- Forex: Traders continued to sell the USD, with the USD index hitting the lowest level since March 2005. The EUR/USD climbed to a new 2yr high after the IMF's Rato said that the USD still has more room to drop. GBP/USD moved higher, with technical analysts saying that a solid break of 1.9824 resistance is needed to confirm the recent rally has resumed. UK wage inflation seems to have settled (UK wages rise by 3.5% in 3 months ended April v 3.5% in 3 months to end of March - Income Data Services) and provided some support to the GBP. USD/CHF was testing 1.2142 support at the time of writing this.

- Equities: The Nikkei 225 opened higher by more than 0.40%, but is currently trading near session lows. Traders said that sector rotation was the dominant theme on the Nikkei, with profit-taking on shares heavily bought over the last week being counterbalanced by bargain hunters picking up oversold stocks. Sony gained on press reports that the company may sharply increase its 07/08 operating profit. Shares of All Nippon Airways rose sharply on a report that the company is to sell some of its hotel assets to Morgan Stanley to address its current liquidity concerns. Despite an overall positive session for the Nikkei, shares of Toyota are sharply lower on declines in the USD/JPY pair and on fears that its U.S. sales may have peaked. The KOSPI index is lower by more than 0.15% as Samsung declined following its earnings report. Samsung shares are in negative territory as its Q1 profit and chip sales slightly missed analysts' estimates. Looking forward, Samsung is expecting chip prices to stabilize in Q2. The ASX 200 index is lower on declines in mining shares. The Hang Seng is higher by more than 0.10% on gains in shares of Cnooc.

- Commodities: Crude oil is higher and above $64 on refinery problems at Valero's McKee refinery (170K bpd). Spot gold is higher by more than 0.30% and above $682, tracking moves in crude and the USD. The consensus is that a near-term correction in gold does not necessarily call the overall bull market into question. Shanghai copper is lower by more than 2.5% on earlier declines in the LME contract.