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Trichet Boosts Rate Hike Seekers

The Euro strengthened on the session with a dearth of data to purport any type of inspirational move on the currency pair.  The only tidbit came from French consumer spending figures which increased on the month, higher than the consensus expected.  But what did spark some bullish interest were comments this morning by European Central Bank President Jean Claude Trichet.  Commenting on the current state of inflation to the European Parliament in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Brussels, Trichet noted that officials are not satisfied with the current level.  Although this did spark increased speculation of higher rates in the near term, even boosting the Euribor curve by a handful of basis points, sentiment still resides with an August decision.  The theory here is that policy officials will continue to play a wait-and-see approach before deciding to potentially choke off growth prematurely in the region.  As a result, although price increases still remain a priority, central bankers will want to see an uptick in general growth measurements before making a concerted decision, i.e. exports growth.  As a result, some focus will be placed on tomorrows industrial orders for the Euro zone before traders contemplate the effects of the US durable goods orders report.

Rumorville

Selling pressure continues to provide a ceiling for near term gains as short orders are residing at the 1.2675 level and higher.  Subsequent stops and sellers are placed at the 1.2700 figure with thinner interest above at the 1.2750.  Comparatively, bids reside at the 1.2625 and 1.2600 figures.  Rumored option barrier on a DNT are keeping the major currency rangebound in a tight squeeze.

USDCAD

Dodge Douses Rate Speculation

More power for the Loonie as retail sales data grew stronger than originally expected.  Trumping expectations of a 0.3 percent rise, consumer resolve was more than adequate as the report launched higher by 1.7 percent.  Even more impressive was the less autos component, climbing more than 3 times consensus expectations.  The positive report bolstered further optimism, and subsequent speculation, of higher rates in the worlds ninth largest economy as it follows a promising employment picture and higher inflationary suggestions.  However, popping the party bubble were comments by Bank of Canada Governor David Dodge.  Speaking to a business audience this afternoon, Governor Dodge conceded that recent reports were stronger, however, were also countered by not so great preceding reports.  The ambiguity suggested that although rates may potentially rise, it wouldnt be in the near term as the central bank continues to assess the effects of an appreciated currency and economic growth.  Looking ahead, the currencys fluctuations for the rest of the week look restricted as we end our string of economic data for the region.  As a result, concentration may shift to the impending 1.0930 support figure as the pair continues to remain rangebound, albeit for now.

Rumorville

On the range bound ticket, buying interest looks to follow after a little bit more wiggle room on the current decline.  As a result, bids are looking heavy at the 1.1010 and 1.0970 figures with comparative selling pressure coming in at the 1.1100 figure and above in the near term.

AUDCAD

AUD Cross Suffers Despite Positive Survey

Contrary to conventional wisdom, the Australian dollar suffered despite a Westpac leading index report that indicated positive growth in the coming months for the PacificIsland economy.  According to the Westpac-Melbourne Institute leading survey, the likely pace of growth in the economy rose 1.5 points higher in the month of April.  Even more positive was the coincident component, or the current activity component, which rose 0.8 points higher.  This has purported estimates of gross domestic product to be revised higher, with some expectations surrounding a rebound by 3.5 percent this year on a rebound in the housing sector and increased lending.  However, sentiment sides with a preclusion of a much sharper rise in growth as recent rate hike initiatives are likely to keep consumers and subsequent spending at bay.  Readers will remember the most recent rate hike decision by the Reserve Bank of Australia on May 3 by 25 basis points.  This eventual scenario plus the turn in risk aversion looks to have led to cross selling in the AUDCAD currency pair as prospects continue to favor the Canadian currency.