Further Sharp Drop in Australian and Canadian Dollars

May 20, 2010

The U.S. dollar advanced 2.1% and 1.1% against the Aussie and Canadian currencies.  The kiwi, down just 0.5%, has shown greater resilience following a well-received New Zealand budget that cut income taxes, raised sales taxes to 15% from 12.5%, and emphasized a long-term plan to contain raising foreign debt.

The dollar has also risen 0.6% against sterling and 0.4% relative to the beleaguered euro but slid 0.2% against the Swissy and by 0.4% against the yen.  Market chatter continues to talk about the euro sliding to $1.10.  There was heavy Swiss intervention yesterday to cap franc strength against the euro.

Asian stocks weakened significantly further, with declines of 1.8% in Taiwan, 1.7% in South Korea, 1.5% in Japan, and 1.3% in Indonesia and China.  Equities in Australia fell by 1.6%, but European markets presently show smaller drops of 0.3% in Germany, 0.2% in Britain, and 0.1% in France.

The ten-year JGB yield slid two basis points to 1.27%.  In Europe, no other country has followed Germany’s cue on banning short selling, rendering that attack against speculators to be pretty useless.  Ten-year Spanish and Greek yields firmed six basis points each.  Gilt and bund yields are 3 and 1 basis points firmer.

Oil prices slipped 0.4% to $69.60 per barrel.  Gold dropped 0.8% to $1184 per ounce.

First-quarter Japanese growth of 4.9% at a seasonally adjusted annualized rate (saar) from 4Q and 4.6% from 1Q09 was not quite as rapid as analysts were anticipating.  Exports soared 30.5% saar compared to an import gain of 9.6% saar.  However, personal consumption (1.3% saar) and residential investment (1.1%) were disappointing.  Inventories accounted for 0.8 percentage points of the 4.9% rise in GDP.  Business investment rose 4.2% saar.  The GDP price deflator was 3.0% lower than a year earlier, and the personal consumption deflator fell by 2.1% on year.

Japanese convenience store sales dropped 3.7% on year in April.

Japanese investor selling reportedly lies behind the Aussie dollar’s recent slide.  Expected inflation in Australia over the coming 12 months eased to 3.6% from 4.1% according to the latest Melbourne Institute monthly survey.

Taiwan’s on-year rate of GDP growth accelerated to 13.27% in the first quarter, best since 1978, and a 35.15% jump in export orders in the year to April points to continuing rapid economic growth in the current quarter.  Taiwan posted a US$ 9.9 billion current account surplus last quarter.  The country’s index of leading economic indicators jumped 1.4% in March, most in ten months.

Hong Kong CPI inflation was at an expected 2.4% in April.

The volume of British retail sales increased 0.3% in April and posted an unchanged 1.8% increase from a year earlier.  Sales had jumped 2.4% in February and gone up a further 0.5% in March.

German producer prices rose more than forecast last month, a gain of 0.8% after an increase of 0.7% in March.  On-year PPI inflation swung above zero to 0.6% from minus 1.5% in March and a low-point in 2009 of minus 7.8% last July.  Non-energy producer prices rose 0.5% on month and 1.1% on year.

Italy’s current account deficit widened 5.9% to EUR 5.284 billion in March from EUR 4.990 billion in February.  Industrial orders and sales in Italy respectfully increased 1.0% and 1.5% in March and were 13.1% and 6.3% greater than a year earlier.

The Swiss ZEW index of investor sentiment fell to 40.5 in Mary from 53.4 in April.

Greece saw more street protests today against austerity.  German Chancellor Merkel said necessary action will be taken to save the euro.  Juncker of the EU asserted that intervention is not needed now, noting the recent pace of depreciation has not been so steep as to warrant such.  Adam Posen, a policymaker at the Bank of England, said the euro had lost a chance to become a key reserve currency to rival the dollar.

Norwegian GDP slid 0.1% last quarter, while mainland GDP edged 0.1% higher.

A restructuring of Dubai World’s $23.5 billion of debt has finally been arranged with its creditors.

Investors await U.S. jobless insurance claims, index of leading economic indicators, and the Philly Fed index.  A preliminary reading of Euroland consumer sentiment, and Canada’s index of leading economic indicators arrive today as well.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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