New Overnight Developments Abroad: Dollar Lower on Global Recovery Optimism

June 11, 2009

The dollar suffered significant overnight losses of 2.4% against the kiwi, 1.7% against the Australian dollar and 1.0% versus sterling.  The greenback also fell by 0.7% against the Canadian dollar, 0.3% against the euro and 0.2% relative to the Swiss franc.

Pacific Rim equities closed mixed.  Indonesia (-0.9%), India (-0.6%), Singapore (-0.4%), Japan (-0.1%), and China (-0.9%) were lower.  Stocks rose 2.8% in Vietnam, 0.6% in Australia, 2.7% in The Philippines, 0.3% in South Korea, 0.8% in Sri Lanka, and 0.4% in Thailand.  In Europe, the German Dax, British Ftse, and Paris Cac show gains of 0.6%, 0.3%, and 0.1%, while U.S. stock indications suggest a rise at the open.

Bond yields are firmer.  10-year Treasury now at 3.94%.  10-year JGB up another basis point to 1.56%.  Bund and gilt yields higher.

Oil advanced by a further 1.0% to $72.02/barrel.  An upwardly revised forecast of global oil demand by the IEA is one of several factors fanning confidence in a global recovery.  Here are some others:

  • Australian employment fell just 1.7K last month versus a projected consensus decline of 30K. A 0.2 percentage point increase in the jobless rate to 5.7% met market expectations.
  • Chinese fixed asset investment growth accelerated more than assumed to a 5-year high of 32.9% in January-May from 30.5% in Jan-April, reflecting the large fiscal stimulus in part.
  • Britain’s National Institute of Economic and Social Research estimated a decelerated GDP drop in the three months to May of 1.5%.  Bank of England MPC member Sentance also opined that the British recession seems to be bottoming.
  • The IW German Institute based in Kiel revised projected 2010 growth up by a half-percentage point to +0.4%.
  • Japanese first-quarter GDP was revised upward by a full percentage point from a contraction reported initially of 15.2% at an annualized rate to 14.2% saar.  GDP drops in the final three quarters of 2008 were also revised lower, such that GDP in 1Q was a smaller 3.8% below its year-earlier level.
  • Central banks in New Zealand and South Korea did not feel compelled to reduce interest rates after policy meetings.
  • The ECB’s monthly bulletin reiterated the view that positive growth would resume around the middle of 2010.

Revised French labor market data showed a 1.2% quarterly drop and a 2.3% on-year decline of employment in the first quarter of 2009.

China’s May trade data were disappointing.  The surplus of $13.4 billion was smaller than expected.  Exports tumbled 26.4% on year, up from drops of 22.6% in April and 17.3% in March.  Imports fell 25.2% in the year to May.

Russia’s central bank indicated a predisposition to diversify its reserve holdings, cutting the dollar weight.  Roubini of NYU predicted from Athens that the dollar in the future would be sharing its reserve asset role more fully with other currencies.  Moody’s said a Latvian Lat devaluation probably could be avoided in the short term.

Swedish consumer prices rose slightly more than expected in May but still posted a 12-month dip of 0.4%.

Hungarian consumer prices went up 1.5% on month in May because of a 4.9% increase in food.  On-year changes were +3.8% for the total index and 3.1% for the core measure.

New Zealand’s cash rate was kept at 2.5%, breaking a streak of seven straight easings totaling 575 basis points since July 2008.  The Bank said the rate could still go lower and is unlikely to exceed 2.5% before the latter part of 2010.

The Bank of Korea kept its key seven-day repo rate unchanged for a fourth straight time at the record low of 2.0%.  There previously had been six cuts totaling 325 basis points from October 2008 through February 2009.  A statement felt the downturn had stopped (GDP firmed 0.1% in 1Q after plunging 5.1% in 4Q08) but that risks persist amid a highly uncertain landscape.  A very accommodative stance will continue for the time being.

The Central Bank of Brazil’s Selic rate was cut by a greater-than-expected 100 basis points to 9.25%, but a released statement warned that future reductions would be smaller in size.  GDP contraction slowed from 3.6% in 4Q to 0.8% last quarter, and CPI inflation has slowed to a 12-month 5.2% y/y from 5.9% at the end of 2008.

U.S. data today will include retail sales, jobless claims and business inventories.  Canada reports quarterly capacity usage, and Prime Minister Harper will update Canada’s budget projections.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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