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Daily Forex Commentary
Wednesday, 10 March 2010 - Market Commentary:: United States Dollar: The dollar strengthened yesterday on the back of risk unwinding. Yesterday was also the one year anniversary of the bear market lows on the equity indices. As a comparison, and to highlight the rally we’ve had since then, the Dow Jones Index was down at just 6513 (now 10560; 62% gain) and the FTSE 100 in London was down at 3458 (now 5587; 61% gain). Articles in the press cite huge stimulus packages on both sides of the Atlantic, and unprecedented measures to stimulate growth. Although the anniversary passed quietly (according to the FT), Fitch the ratings agency warned the UK that it risks a loss of investor confidence unless it tackles the ballooning budget deficit quickly. The news couldn’t have been better for the Conservative party who have stated that if (or when) they win the upcoming general election, they will hold an emergency budget within 50 days of taking office in an attempt to at least address the hole in public finances. The pound suffered on the back of this warning and GBP/USD fell to 1.4935 before pushing slightly higher. Overnight the selling theme has continued and the pair opens at 1.4920 levels.
- We expect a range today in the GBP/USD rate of 1.4800 to 1.5000
:: Euro: Greece’s Papandreou continues to stir up anger in the markets, suggesting that Obama was receptive to his proposals to introduce measures to curb speculative activity on government bonds. How Papandreou plans to go about introducing these measures is another matter, and many note that it is highly unlikely any such plans will come to fruition. It is worth noting that speculators bought Greek bonds with fervor back between 2001-2006 no one minded, as yields were low and credit was cheap for the Greek government. Now that speculators have driven yields to their highest level in years, Greece is annoyed! The recent rhetoric from Papandreou is likely to rattle investors (speculators) who do not like to be threatened with restrictive trading sanctions. Any further sabre-rattling could be detrimental for Greek sovereign bonds and negative for the Euro. EUR/USD fell to 1.3537 before edging back to levels above 1.3600. We open lower this morning at 1.3550. Against the pound the Euro fared slightly better, peeking above 0.9100 for the first time in a week.
- We expect a range today in the GBP/EUR rate of 1.0930 to 1.1100
:: Aussie and Kiwi Dollars: Positive news in the Australian financial press overnight; a series of successful bond issuances has buoyed the credit markets further, making it easier for larger firms to raise funds on the capital markets. The series of issuances also included the first non-financial corporate in almost a year, illustrating the pace of recovery in these markets. Economists note that such issuances may not be rare going forward, as the recent downturn has discouraged companies from borrowing cash to fund new projects and has ultimately quashed growth. AUD/USD traded as high as 0.9160 overnight and we open slightly lower this morning at 0.9145. When will the Aussie’s unrelenting march higher come to an end? Whilst on many measures the Aussie looks overbought, no data from domestic sources shows any sign of this rapid pace of growth abating. In New Zealand concerns over the high cost of fuel are weighing on growth outlook in the short to medium term. In the press overnight, Shell and Mobil have increased their petrol and diesel prices by 3 cents to its highest level in 18 months. New Zealanders now pay up to 1 dollar and 80 cents (85 UK pence) per litre. Try running a car in the UK where it’s 1 pound and 12 pence a litre (2 dollars and 36 cents)! Productivity concerns on the back of fuel price increases didn’t dampen demand for the Kiwi, which rose to 0.7070 against the dollar and fell to 2.1115 against the pound.
- We expect a range today in the GBP/AUD rate of 1.6200 to 1.6400
- We expect a range today in the GBP/NZD rate of 2.1000 to 2.1250
:: Data Releases:
- AUD: Employment Change / Unemployment Rate / RBA Bulletin
- EUR: Bundesbank President Axel Weber
- GBP: Manufacturing Production (m/m) / Industrial Production (m/m)
- NZD: Official Cash Rate (exp unch) / RBNZ Rate Statement
- USD: Wholesale Inventories / Crude Oil Inventories
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