Softer Dollar With Few New Data Releases

September 17, 2010

The greenback lost 1.0% and 0.9% against the New Zealand and Australian dollars.  The AUD touched a new 2010 high of USD 0.9472.  These commodity-sensitive currencies got a lift from net overnight gains of 0.8% in oil and 0.7% in gold.  The latter hit a new record high of $1284.40 per ounce, while oil is trading in the mid-$70s.

The U.S. currency also fell 0.4% against the euro, 0.3% versus the Canadian dollar and 0.1% against the yen.  For a second straight day, Japanese have not intervened in foreign exchange markets.  But Finance Minister Noda intervened in a verbal sense, countering foreign criticism of Japan’s unilateral action on Wednesday and citing the emergency of deflation which a strengthening yen was aggravating.

Equities mostly rose in Asia and Europe.  The Nikkei closed with a 1.2% advance.  Stocks also climbed by 1.3% in Hong Kong and Indonesia, 1.0% in India, 0.9% in South Korea, 0.7% in Australia and Taiwan, 2.2% in Sri Lanka and 0.5% in New Zealand.  The Paris Cac, British Ftse and German Dax have traded up 1.3%, 1.1% and 0.9%.

The yield on 10-year JGBs firmed three basis points to 1.08%.  German bunds are steady, while the 10-year British gilt edged up one basis point.

German producer prices were unchanged in August and posted a 12-month increase of 3.2%, down from 3.7% in July but well above 1.7% in June, 0.9% in May and 0.6% in the year to April.  The elevation of the 12-month comparison contrasts with U.S. producer prices reported yesterday, where the 12-month rate of 3.1% was down from 5.3% in May.  Seasonally adjusted producer prices in Germany increased 4.7% at an annualized rate in the half-year to August, up from 1.7% in the previous six months to February.

Producer prices in July were also steady in Finland but up 0.4% in Austria.  The on-year PPI rate in those countries was 6.0% and 4.2%.

The euro area’s current account printed at a deficit of EUR 3.8 billion in July, identical to June’s result.   There’s been a deficit in every month of 2010 despite a consistent string of merchandise trade surpluses.  The unadjusted deficit in the twelve months to July was EUR 50.2 billion, down from EUR 113.5 billion a year earlier.  The “basic balance,” which adds long-term direct and portfolio investment flows to the current account recorded similar surpluses of EUR 120.1 billion in the 12 months to July 2010 and EUR 129.6 billion in the 12 months to July 2009.

Italian industrial orders unexpectedly sank 3.0% in July and posted a 12-month increase of just 0.7%.  Industrial sales fell 2.7% on month while rising 8.9% on year.

Construction output in Euroland dropped 3.1% in July and by 7.5% from a year earlier. Construction had risen 1.8% in June after a 0.9% decline in May.

Chile’s central bank late Thursday announced a 50-basis point further increase of its benchmark interest rate to 2.5%.  The trough prior to June had been 0.5%.  India’s central bank also raised rates on Thursday, while central banks in Switzerland and Turkey maintained the status quo.  No central bank rate announcements are scheduled today.  The FOMC meets next week.  Investors have become less certain that quantitative easing measures will be unveiled then.

U.S. consumer prices and the U. Michigan consumer sentiment index will be reported later today.  Belgian consumer confidence and Poland’s PPI and industrial production are due as well.

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

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6 Responses to “Softer Dollar With Few New Data Releases”

  1. varun k says:

    what is driving the Euro up?
    Is it dollar weakness or euro strength?
    but if japs are buying dollars shoudnt the euro go down??

  2. larrygreenberg says:

    One possibility could be investors hedging against the chance the FOMC announce some quantitative easing on Tuesday. The euro has been edging higher since USD 1.1878 floor in early June and at 1.3161 high today had reversed almost 40% of its Thanksgiving to early June decline.

  3. varun k says:

    Thanks for reply sir really appreciate ur insights and articles!!

  4. varun k says:

    And i read ur article “Dollar and Pound Softer” in which u have said the chances of QE are diminishing, yes they can delay but can’t avoid so suppose they have to start QE in next meeting.
    How will market behave then?
    how it will be for USDX?
    and HOw it will be for Equities??

  5. larrygreenberg says:

    The FOMC will not be releasing another statement after this week until November 3, a day after elections. Answers to your questions about the reaction of stocks and the dollar to an extension then are contingent upon what happens over the next six weeks regarding global and U.S. price and activity trends, market movements in equities, the dollar and long-term interest rates, and what is done about fiscal policy and in banking regulation. Another consideration will be the actions of the ECB and Bank of Japan. Because of all these other factors, the dollar might not weaken nor equities strengthen as you’d otherwise expect.

  6. varun k says:

    thanks have a gr8 day ahead sir!!