Stronger Yen and Aussie Dollar

February 19, 2013

The U.S. dollar has declined 0.5% against the yen and 0.4% relative to the Australian dollar

Other overnight dollar movement has been muted, with gains of 0.2% versus the loonie and 0.1% against the euro, Swissie and kiwi.  The dollar is unchanged relative to the Chinese yuan and British pound.

Stocks slumped 1.9% in China, 1.0% in Hong Kong, 0.3% in Japan, and 0.2% in Indonesia but have firmed 0.9% in the Philippines, 0.4% in Australia, and 0.2% in Taiwan, South Korea, and Singapore.  European equities rallied after a solid Spanish auction and better-than-expected investor confidence signaled by the February ZEW Institute gauges.

The 10-year German bund yield slipped two basis points, and the 10-year Japanese JGB and British gilt yields are a basis point lower each.

The price of oil dropped 0.4% on WTI crude to $95.44 per barrel. Gold has firmed 0.2% to $1612.80 per ounce.

Several factors buoyed the yen.

  • Published minutes from the BOJ Board’s meeting of January 21-22 when a 2% inflation target was adopted depict a wide spectrum of opinions with several members skeptical that it is possible to achieve 2% inflation or that adoption of a target even affecting inflation expectations.  A range of suggestions with little consensus were offered on how to make monetary policy easing more aggressive that it already is.  One idea is to start buying assets with a maturity longer than three years.  Analysts are concluding that a fresh outside-the-box approach to ending deflation is unlikely to be implemented before mid-spring, if even then.
  • Remarks from Japanese Finance Minister Aso, who attended the G20 meeting, suggest that Japan in private may have been reined in more than appeared to be the case.  While admitting that a softer yen had been a policy aim, Aso denied that a change in BOJ law is under present consideration and said foreign bonds would not be purchased.  Such remarks appear more tempered than what a government with a carte blanche to depreciate its currency would make. 
  • Prime Minister Abe said the appointment of a BOJ governor and two deputy governors is being treated as a bundled matter.  He did not say when his decision would be revealed.  These changes affect just three of nine positions on the Board.  Only one of the other six, Miyao, is a genuine dove, so it’s possible that a 5-4 split with a residual conservative tilt might remain.

The Reserve Bank of Australia released minutes from its February 5 meeting.  They seem to suggest a lessening likelihood of additional rate cuts.  The Cash Rate had been cut 25 basis points to 3.0% in December (followed by no meeting in January) and has dropped 175 bps since November 2011, and the minutes reveal confidence that better growth is taking hold and a predisposition to wait and observe how the economy responds to the monetary accommodation before doing anything further to augment such.

The ZEW Institutes takes the pulse every month of investor confidence in the German and Ezone economies.  Improvement continued in February and far surpassed analyst expectations.  For Germany, the expectations index jumped to a 34-month high of 48.2 in February from readings of 31.5 in January, 6.9 in December and negative 15.7 in November.  The current conditions index slid back to 5.2 from 7.1 in January, 5.7 in December and 5.4 in November.  Regarding the euro area, the expectations index of 42.4 in February was also the best reading since April 2010 and up from 31.2 in January.  The current conditions index was little changed at negative 75.6, 0.3 points lower than in January.

Ezone construction output ended 2012 on a down note, dropping another 1.7% on month and by 4.8% from a year earlier.  Construction in the fourth quarter was 1.6% below the 3Q average and also down 4.8% on year.  Portuguese construction got really clobbered, slumping 18.4% on month in December and dropping 8.5% below the December 2011 level.

European car sales in the E25 posted a smaller 8.7% on-year decline in January than the 16.3% drop in December.

Finnish consumer prices dipped 0.1% on month in January, and the 12-month rate of increase slowed to 1.6% from 2.4%.  Swedish consumer prices fell by 0.8% on month and were unchanged on year in January.  Core inflation held steady at 1.0%.  Swedish unemployment was at 8.0% last month in seasonally adjusted terms by at 8.4% unadjusted.  Both readings were higher than in December. Portuguese PPI inflation slowed to 1.9% last month from 3.6% in the year to December.  CPI inflation in Cyprus accelerated to 2.0% last month from 1.5% in December.

The Greek current account deficit narrowed very sharply to EUR 534 million in December from EUR 850 million in November.  Spain’s trade deficit of EUR 1.29 billion in December was a bit larger than forecast but smaller than the November shortfall of EUR 1.4 billion.

OECD real GDP fell 0.2% last quarter, the first contraction in fifteen quarters.  The United States, Euroland, Japan and Britain all reported negative growth.  France’s foreign minister said the government will probably revised projected 2013 growth downward from 0.8% to either 0.2% of 0.3%.

Turkey’s 1-week repo rate was left at 5.5% as analysts were expecting, but the central bank cut overnight rates and raised reserve requirements after this month’s policy meeting.  Officials are trying to meet a number of objectives.

In the U.S., the National Association of Home Builders releases its monthly housing market index today.  Markets reopen after the three-day President’s Day holiday weekend.  There’s been rising concern in the U.S. about latest developments in chain store sales.  Canada will be reporting wholesale turnover and security transactions.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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