NEWS / Foreign Exchange

USD recovers against majors

Central Bank comments fuel intervention rumours

Although the NZD initially spiked higher following yesterday??™s hike in the Official Cash Rate, the currency failed to surpass last week??™s post float high of 0.7493. Having failed to break 75c the NZD moved sharply lower in overnight trade, with comments from the Reserve Bank that the currency is ???exceptionally and unjustifiably??? high fuelling rumours of possible Central Bank intervention. A broadbased USD recovery and a slide in commodity prices pushed the NZD to an overnight low of 0.7368, before the currency recovered to this morning??™s opening level of 0.7390.

AUD lower as commodity prices reverse

The AUD drifted lower during the local session yesterday to touch an intra-day low of 0.8332. However, the currency came under further pressure during off-shore trade as the USD rebounded from recent losses and commodity prices reversed recent gains. With gold prices tumbling to a three week low and base metals moving sharply lower, the AUD slipped to a low of 0.8256. The currency opens this morning towards the lows at 0.8260.

USD recovers against majors

The USD corrected yesterday in the wake of it??™s recent strong run despite little market data to prompt a change in overall direction. Profit taking was seen after the euro failed to break through the 1.3670 resistance level and as a result the currency pair plummeted through 1.3600 to an intra-day low of 1.3583. GBP followed a similar path despite positive UK housing data released earlier in the day. USD/JPY meanwhile rallied through 119.00 to post a 10 day high of 119.67. The market awaits key US Q1 GDP data due out tonight for further direction.

Japanese small business confidence slipped below 50 in April. The Shoko-Choking small business confidence index fell from 50.4 in March to 49.6 in April. Higher input costs, rising rents and inventory issues are the obvious culprits.

US initial claims fall 20k to 321k. Initial claims have now reversed their Easter related spike, confirming our view that there has been no material underlying upshift in the claims trend. In the prior week, continuing claims jumped sharply but the same distortion is most likely at play. Still on the labour market, the help wanted index fell to 30 in March, its lowest for the year so far. But it is worth noting that the index??™s all-time low of 29 was hit in November last year. In that month, payrolls jumped 196k, and they rose a further 226k in December. So help wanted data are not a useful guide to hiring strength.

The Bank of Canada??™s monetary policy report included slightly upgraded inflation projections, slightly lower growth forecasts and as we saw in Tuesday??™s rate decision press statement, the Bank now judges that the Canadian economy was operating just above its production capacity in the first quarter of this year. Consequently the Bank now sees inflation risks with ???a slight tilt to the upside???.

German import prices rose 0.9% yr in March, up from 0.8% yr in February but still close to the lowest for three years, thanks to euro appreciation. In Saxony, one of the early reporting German states, the April CPI was 2.4% yr, down a tick from 2.5% yr in March - maybe a guide to the national data due out tomorrow.

German consumer confidence was reported at 5.5 in May (but surveyed in early April), its highest on record. Not much prolonged impact from the January VAT hike then!

The French INSEE business confidence indicator rose from 109 to 111 in April. That??™s a new cycle high, perhaps a little surprising given that the French economy has not being doing so well lately (it??™s lagging Germany, certainly).

UK house prices up 10.2% yr in Apr, according to Nationwide BS. That is further confirmation that the UK house market is on fire again, consistent with the other prices measures and anecdotes from the real estate sector.