FXS:The JPY gained overnight as falling commodity prices
The US Dollar is mixed this morning after weekly jobless claims missed the mark yet again. The number of people filing for first time unemployment benefits came in at 434K, better than last week’s 478K, but still worse than the 430K expected. However, possibly even more troubling is that continuing claims picked up, registering 3756K, far worse than the drop to 3700K that was expected. Retail sales registered largely in line with expectations at 0.5%, just short of the 0.6%. However, with the volatile automobile and gas components stripped out, sales only advanced by 0.2%. The producer price index was also released this morning slightly higher than expected. With food and energy excluded, prices increased by 0.3% from last month. On an annualized basis, PPI has now gained to 2.1%, but with the volatile food and gas components added in, the measure has advanced by 6.8%. While producers will likely pass on at least a portion of these price gains to consumers, most still expect the Fed to leave interest rates on hold. While higher rates may slow inflation, they could also prove prohibitive to economic growth, and would likely only slow growth in the labor market further. However, investors are focused on risk aversion and falling stock and commodity prices this morning. While the dollar has extended its recent gains in its role as a relatively safe investment, it may struggle to appreciate further against most of its major peers as the nation quickly approaches the current $14.294T debt ceiling.
The EUR consolidated in its new lower ranges overnight as investors remain on edge about troubles in Greece. The broader risk-averse tone has also weighed on the common currency as investors seek safer assets like the USD, JPY, and CHF. However, euro selling has stalled before a report tomorrow is expected to show that the Eurozone economy is growing at a quickening pace. The report is expected to show GDP growth at 2.2%, up from 2% in the previous three months. Also in spite of soaring yields on government debt in the region’s periphery economies, futures traders are still expecting the ECB to raise its target rate by 91 basis points over the next 12 months. However, the euro’s yield advantage can only support it so much with the political and economic divides amongst the Eurozone’s member states worsening.
Sterling is lower this morning after a report showed manufacturing slowed in the UK. Output increased by 0.2%, short of the 0.3% advance expected, suggesting that the BoE has room to keep rates on hold in the near term. A separate report showed that UK industrial production registered a 0.3% gain, far short of the 0.8% anticipated. The BoE is clearly more focused on supporting economic expansion rather than combating inflation, and they appear to fear that growth in the UK is “skewed to the downside.” The pound remains highly susceptible to sharp swings as traders gauge the prospects of tighter monetary policy versus weak economic growth.
The JPY gained overnight as falling commodity prices and weak economic reports prompted investors to unwind bets on higher yielding assets. With the risk-off trade gaining momentum, the safe haven JPY and CHF have appreciated throughout much of the week. However, the Japanese economy faces significant hurdles of its own as it struggles to rebuild after the devastating natural disasters earlier this year. The strong yen has also prompted a number of major Japanese corporations to consider moving core operations overseas, including Toyota, the stalwart Japanese automaker. However, in the near term, the yen’s appeal as a relatively safe currency will keep it well supported against most of its major counterparts.
The Commodity Currencies are mixed this morning, with the CAD, AUD, ZAR and MXN down sharply, while the NZD posted a 0.5% gain. Raw goods continued to sell off with oil dropping to $97.51/bbl, gold was down to $1490.70/oz, and silver plummeted a further 12% to $33.61. The CAD dropped to its weakest levels in a week after a labor report in the US, Canada’s primary trading partner, showed that more Americans were filing for unemployment benefits. The loonie has also been stung by oil’s push back below $100/bbl. The AUD shed more than half of a percent as China raised deposit requirements on its banks, the most recent step as the PBoC tightens monetary policy to combat soaring inflation.
Australian employment also unexpectedly weakened last month as business cut workers by the most since 2009, led by a slowdown in states not as affected by the nation’s recent mining boom. With commodities under pressure, fiscal policy expected to tighten, and global demand slowing, the AUD and other commodity currencies will struggle to maintain their recent gains.
