US Dollar, Japanese Yen Mixed as Majors Consolidate Moves

Published September 9th, 2009 - 11:02 GMT

- British Pound Gains as UK Trade Deficit Narrows, Ahead of BOE Rate Decision
- New Zealand Dollar on Edge Ahead of RBNZ Rate Decision
- Australian Dollar Reverses from Weekly Highs Near 0.8650
- Canadian Dollar Down Despite 12% Surge in Housing Starts

US Dollar, Japanese Yen Mixed as Majors Consolidate Moves
The US dollar and Japanese yen were mixed against the majors, but experienced their sharpest declines against the Swiss franc and euro as the European currencies extended their rallies from yesterday. US news didn’t start coming into play until the afternoon, as Dallas Federal Reserve President Fisher said during a speech that the US economy is stabilizing with some areas “even reviving” as growth may see a “near-term snapback,” followed by a longer period of slow growth. The Federal Reserve’s Beige Book added to this sentiment as it showed that 5 of the 12 districts noted "signs of improvement" and most said that the economy continued to stabilize. At the same time, the report also showed that the labor markets were weak in all 12 districts, house prices still showed “downward pressures,” and credit standards were “tight” in most districts, which helps to explain why equities fell back and the US dollar and Japanese yen gained briefly. Overall, the DXY index break below a rising trendline drawn from the July 2008 low doesn’t bode well for the US dollar outlook, but with no major US data due to be released tomorrow, risk trends may be the dominant drive of the low-yielding currencies.

Related Articles: US Dollar May Finally See Break from Summer Ranges as Liquidity Returns, US Dollar Weekly Trading Forecast

British Pound Gains as UK Trade Deficit Narrows, Ahead of BOE Rate Decision
The British pound was mostly stronger on Wednesday, falling only against the Swiss franc and euro, as the UK visible trade deficit narrowed slightly to £6.479 billion in July from a revised reading of £6.515 billion in the previous month. A closer look at the report shows that exports rose 5.0 percent from June, indicating that a mild recovery in the Euro-zone – the nation’s biggest trade partner – is helping to improve demand for British goods. Looking ahead. the Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent on Thursday at 7:00 ET, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement. This has consistently been the prime “news event” of recent rate decisions, including last month, when the BOE unexpectedly announced a £50 billion expansion to their quantitative easing program that would likely come to an end in early November. That said, with no expansion anticipated, the statement is likely to just be a straightforward announcement offering little insight, and thus, the British pound shouldn’t show much of a reaction.

Related Articles: Euro Weekly Trading Forecast, British Pound Weekly Trading Forecast

New Zealand Dollar on Edge Ahead of RBNZ Rate Decision
The New Zealand dollar started the day off on a strong note but subsequent pulled back through the afternoon, along with other carry trades and equities. The currency faces its own event risk at 17:00 ET as well, when the Reserve Bank of New Zealand (RBNZ) is anticipated to leave the Official Cash Rate target unchanged for the third straight meeting at 2.50 percent. In RBNZ Governor Alan Bollard's last policy statement, he sounded extremely cautious on the outlook for the economy, especially because the strength of the New Zealand dollar had created additional risks. Where the New Zealand dollar ends the trading day will likely have to do with the status of one statement though: the final portion. We also saw in the last policy statement that the RBNZ maintained that it was “appropriate to continue to provide substantial monetary policy stimulus to the economy” and that the central bank could still lower rates “modestly” during the coming quarters as they “continue to expect to keep the OCR at or below the current level through until the latter part of 2010.” If the RBNZ eliminates the phrase noting that they could still lower rates, the New Zealand dollar is likely to surge in anticipation of rate hikes down the line. On the other hand, if the RBNZ maintains their dovish-neutral tone, the currency could slip.

Related Article: New Zealand Dollar Resilience May Hinge Upon Today's RBNZ Rate Decision

Australian Dollar Reverses from Weekly Highs Near 0.8650
The Australian dollar was one of the biggest laggards on Wednesday as AUDUSD fell from the weekly high of 0.8657, and the trend could continue upon the release of the Australian net employment change at 21:30 ET, which may show a decline of 15,000 during August following a surprise increase of 32,200 in July. Furthermore, the unemployment rate is anticipated to edge up to 5.9 percent, the highest since July 2003, from 5.8 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Australian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.

Canadian Dollar Down Despite 12% Surge in Housing Starts 
The Canadian dollar gained slightly upon the release of Canadian housing starts, which were better than expected in the month of August and rose 12.1 percent from July to an annual rate of 150,400. Otherwise, though, the currency was the weakest major, and the Canadian dollar could see a pickup in volatility on Thursday at 9:00 ET as the Bank of Canada is expected to leave rates unchanged at 0.25 percent once again. After the Bank left rates unchanged on July 21, they said that they would maintain a neutral stance through June 2010, and the rest of the statement was relatively optimistic as they revised forecasts for growth. The outlook for 2009 was revised up to -2.3 percent from -3.0 percent while the 2010 outlook was revised up to 3.0 percent from 2.5 percent. That said, the BOC has made it clear that their policy stance is contingent upon the inflation outlook, which they most recently judged as offering downside risks. If we see a reiteration of these comments and no substantial shift away from cautious optimism to more positive sentiment, the BOC’s statement may not be a huge market-mover. However, if the BOC comments upon the negative impact of the Canadian dollar’s strength, we could actually see the currency pull back if it reflects some potential for more verbal intervention.
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Written by: Terri Belkas, Currency Strategist for

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