Canadian Dollar Rises as Oil Shows Strength

The Canadian dollar rose against the 3 other major currencies today, completely reversing the daily trend, as the oil and commodity markets become more attractive after the holidays.

Today the loonie (another name for the Canadian currency) is growing for the third day against the Japanese yen and the Euro and for the second day against the U.S. dollar. The Canada’s currency gained an additional momentum after the crude oil gained more than 1.3 percent in New York today.

The commodity economies that rely heavily on the export of the oil and some other raw supplies, such as metals, will experience an uprise in their currencies’ demand as the analysts believe that the oil bottom has been already reached. On the other hand, if the oil loses its bullish trend, the Canadian dollar will return to the levels significantly below its current rates.

USD/CAD declined from 1.2054 to 1.1916 as of 17:54 GMT today. CAD/JPY rose from 76.36 to 78.33 and EUR/CAD fell from 1.6736 to 1.6159 today.

AUD, NZD Down on Aroused Risk Aversion

The Australian and New Zealand dollars both showed a second day of decline today on the Forex market as the stocks, commodities and the confidence in the fast recovery from the recession fell world-wide.

Both currencies have been showing a nice daily rally against the U.S. dollar and the Japanese yen until they began to go down yesterday, almost paring the gains of the previews 3-5 days. The carry trade wave, which started in the last decade of December didn’t live for too long and the risk-averting mood now dominates over the Forex market again.

The fundamentals from the Australia are continuing to come out worse than the traders expect — the housing and the employment markets are still highly depressed. Commodities are the large part of the Australian exports and they aren’t very popular these days with the price on many types are already at the levels of 2004/2005.

AUD/USD fell from 0.7132 to 0.6998 as of 8:16 GMT today. AUD/JPY declined from 65.98 to 64.23. NZD/USD went down from 0.5914 to 0.5862, while NZD/JPY slid from 54.70 to 53.77 today.

Dollar Weakens before Important Reports

The U.S. dollar declined today against the other major currencies, except yen, after rallying for three days, as the investors sought a technical correction before some important macroeconomic reports to be released today in United States.

Federal Reserve Chairman Ben Bernanke said yesterday that the new fiscal policies wont’ produce a long-term recovery effect on the whole economy, hinting that the additional monetary measures will be used to ease the financial conditions. But those measures may also press on the dollar. Traders already started to include this information into their bets against the greenback.

Although many analysts believe that the first-in-first-out rule will work when the current crisis will be over — meaning that the U.S., which entered the recession first, will be out of it before Europe or Japan, some point out that the bad news are still coming out mostly from United States. Some even say that the consequences for U.S. will be much more serious than for any other developed country.

EUR/USD rose from 1.3178 to 1.3206 as of 9:05 GMT today after reaching as high as 1.3336 earlier. GBP/USD went up from 1.4507 to 1.4605, while the daily high was reached at 1.4706; USD/JPY rose from 89.35 to 89.57.

Pound Gains against Euro

The British pound rose against the euro today along with some other major currencies as the euro suffers from the trade balance deficit, while the traders long for some high-yielding European currency, which the pound still is.

Eurostat agency reported that the November 2008 trade balance deficit of the European Union countries was at €7 billion compared to €2.3 billion surplus in November 2007. That statistics hurt the euro as the market paritcipants expected that the trade balance would have a surplus of about €1 billion this November.

While the Eurozone’s stats aren’t impressive, the traders a feeling very risk-hungry today after the growth in the U.S. and Asian stock markets during the latest sessions. The Great Britain pound is one of the currencies that can allow the traders to gain their «safe risk». That’s why the pound is currently showing 3rd day of growth against the euro.

EUR/GBP fell from 0.8967 to 0.8895 as of 11:23 GMT today. GBP/USD went up from 1.4651 to 1.4930, while GBP/JPY advanced from 131.62 to 135.18 today.

Pound Hits New Record Low vs. Yen

The British pound fell to the record low level against the Japanese yen and declined significantly against the other major currencies today as the market participants are concerned that the U.K. recession will continue deepening and the Bank of England will have to reduce the rates further.

The pound declined to the lowest level against the U.S. dollar since June 2001 and posted its fourth negative daily result against the European currency. The yen gained against the all high-yielding currencies and renewed its 8-year high against the New Zealand dollar today, while reaching a new absolute maximum against the pound.

Analysts believe that the Bank of England minutes for the last Monetary Policy Committee meeting, that are going to be released today, will show that the bearish sentiments are still very strong in BoE. Traders should be careful though, the the pound will likely to get to a strong support level against the U.S. dollar soon.

GBP/USD fell from 1.3870 to 1.3775 as of 8:53 GMT today. GBP/JPY declined from 124.39 to 123.74, while the daily low was at 122.94 — its new all-time minimum. EUR/GBP rose from 0.9273 to 0.9368 today.

Rupee Opens Higher Today on Stocks Revival

The Indian rupee advanced against the U.S. dollar during the Forex trading session opening today as the stock markets showed some strength world-wide and the investors used the short-term opportunity to enter the high-risk assets.

Almost 3 percent growth of the Bombay Stock Exchange Sensitive Index (SENSEX) was accompanied by the news from the Reserve Bank of India Governor Duvvuri Subbarao — the interest rate was left unchanged today after four cuts in a row during the last three months. The rupee bulls now have the cumulative advantage, while the investors seek the chance to buy the now-cheap Indian businesses.

Some analysts share the optimism of the markets and believe that rupee’s growth from 7-week bottom may be one of the last, if not the last, support level before a considerably long trend. Others focus on the coincidence of the decision to leave the rates unchanged and the growth of the global stock markets — they believe that when the world’s optimism is over (the next few days) the India’s currency won’t stand a chance.

USD/INR opened at 48.43 today after closing at 48.50 on January 25th and remaining unchanged during the holiday on January 26th. During today’s trading session the currency pair rose to 48.75 as of 8:14 GMT.

Depression Beckons?

This morning’s psychologically accepted number will be -700k for NFP. Below this, the USD will rally and a large sigh of relief, at least for another 4-weeks anyways and anything greater than -700k, then goodbye ‘mighty greenback’. We know it’s bad when President elect Obama uses campaign style techniques to sell his policy changes. Many feel that this month’s figure will be the ‘watershed’, I expect next months to be worse!
The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies, in another ‘whippy’ trading range ahead of employment data.

Analysts are asking the question, are yesterday’s US employment claims the calm for today’s storm? It’s highly anticipated that this morning’s numbers will be bad but probably not as bad as next month’s data. Due to last week’s 4-day stat week, we once again saw claims fall to +467k on a seasonally adjusted basis. The market had been expecting a figure close to +545k. But, on a non-seasonally adjusted basis, claims increased to +726k. More of a concern was that continuing claims pushed through the +4.6m benchmark, and is now encroaching on the all time high of just over +4.7m continuing claims that was achieved 26-years ago in Nov.1982. This is the component that is the engine for the unemployment rate and the trend is now pointing towards an 8% unemployment rate for the 1st Q of 2009.
Preliminary December same-store sales from the International Council of Shopping Centers (ICSC) fell -1.7% in Dec. over Nov. The combined Nov/Dec holiday season was down -2.2% which is the largest decline on record back to 1970. Analysts foresee the distribution of sales is becoming much more skewed toward discounters and sharply away from high-end retailers. Sales ex-Wal-Mart was down by -4.3%. Expect over the coming month a higher percentage of Retailers going out of business.
There were no surprises yesterday when the BOE cut their main borrowing rate by 50bp to 1.5%. This is the lowest rate since the inception of the Cbank in 1694. Governor King is trying to prevent the credit squeeze from deepening. Next week we have Trichet and the ECB. Historically they are tight lipped but market consensus is leaning towards a 25bp ease. Next stop quantitative easing
The US$ currently is higher against the EUR -0.62%, GBP -0.42%, CHF -0.32% and lower JPY -0.09%. The commodity currencies are weaker this morning, CAD -0.84% and AUD -0.93%. The loonies’ rapid rise came to a halt this week as both crude oil inventory reports and a weaker than expected US job data knocked the loonie from its 2-month high printed earlier in the week. The currency is guilty by its association and proximity to its largest trading partner, the US. 50% of all Canadian exports are commodity based, technically on a cross related basis it’s aggressively underperforming and rightly so, but it’s holding in rather well vs. the USD. Traders are waiting for this morning North American employment, where it’s expected to show that Canadian unemployment rate edged 2/10’s higher to 6.5%. With oil paring close to 3% yesterday, traders continue to favor selling of the loonie on any USD pull backs. Consensus has the loonie trading under pressure for the remainder of this quarter and backing up towards the 1.2800 level again. Politically Canada has not been proactive in protecting itself from a deepening global meltdown. If anything its reactive, unlike the US. Eventually the true value of the currency will catch up and things fundamentally and technically point to a weakening CAD. Let see what Canadian employment numbers has in store for us this morning.
The AUD is heading for its 1st weekly loss in a month as investors once again shy away from higher yielding asset classes. O/N the AUD$ had comfortably pared all of last weeks gains as the price of commodities continue to trade under pressure. Commodity exports account for 40% of the countries total exports (0.7038).
Crude is higher O/N ($42.08 up +38c). A fear of a much deeper recession continues to undermine crude prices. A weakening equity market and rising number of jobless workers have intensified concerns that the recession will cut fuel usage. Demand destruction remains the order of the day. Oil has been unable to retain the week’s earlier gains after this week’s EIA report took the market by surprise. The black stuff managed to lose another 3% yesterday as the weekly data showed a bigger than expected increase across the board for crude oil, gas and distillate fuel. Inventories of oil rose +6.68m barrels to +325.4m last week, that’s the highest level in 8-months (the market had anticipated an increase of +800k barrels). It’s all about contango trading, which encourages companies to increase stockpiles if they have available storage (hence the demand for supertankers to be used as a mobile storage facility). Dealers are encouraged to do so as the price of oil for delivery in 11-months time is 33% more than for next month. Gas stocks rose +3.33m barrels to +211.4m barrels vs. an expected +1m barrels. Finally distillate supplies (heat oil and diesel) jumped +1.79m barrels to +137.8m. Yesterday’s US economic numbers will impede future fuel demand as it provides stronger evidence that a deepening recession is occurring globally. The geo-political issues like the violence in Gaza and natural gas crisis, is no match for demand destruction caused by weakening economies. Gold prices rallied the most in a week as the greenback eased vs. the EUR, thus boosting demand for the ‘yellow’ metal as an alternative investment ($854) in the O/N session it remains little changed.
The Nikkei closed 8,836 down -39. The DAX index in Europe was at 4,874 down -5; the FTSE (UK) currently is 4,490 down -15. The early call for the open of key US indices is lower. The 10-year Treasury yields eased 2bp yesterday (2.47%) and have backed up 4bp in the O/N session ahead of this morning’s data (2.43%). Dealers had been pushing yields close to their highest levels in 3-weeks despite global equities coming under pressure once again. FI prices are being weighed down by the sheer size of President-elect Obama’s stimulus plan. This morning NFP number could once again be another eye opener that may lead to FI to experience another rampant rally.