* USD: Higher, unwind of carry trades sparked by Fed optimism about the US recovery, Greek fiscal problems
* JPY: Lower, Kan welcomes USD/JPY at 90, budget uncertainty
* EUR: Lower, Greek debt downgrade, construction output declines
* GBP: Lower, retail sales decline
* CAD and AUD: AUD & CAD lower, spike in risk aversion, Canada's inflation rises/investment flows strong
Overview
USD surged to a three-month high with the EUR pressured by S&P downgrade of Greece's debt rating and in reaction to Fed optimism about the US economy. S&P lowered Greece's debt rating by a notch. The downgrade of Greek debt generates concern about the EU fiscal outlook. The Fed says that the US economy is picking up and deterioration of the labor market is abating. Although the Fed stopped short of signaling when it will begin to hike interest rates the Fed is moving closer to the end of its ease cycle and the USD is supported by unwind of USD carry trades. Bloomberg reports that unwind of the USD carry trade may be the biggest threat to the global economy in 2010. According to the report everyone is borrowing in USD at zero rates and using the funds to buy higher yielding assets around the globe. As the Fed moves away from zero interest rates the USD may rally as carry trades are unwound and this will reduce liquidity for equities and commodities markets. GBP was pressured by report of unexpected decline in UK retail sales. Commodity currencies traded lower tracking weaker equity markets with CAD trading lower despite report of higher than expected Canadian CPI. JPY trades lower despite weaker equity market trade pressured by a broad USD gains versus Europe and concern about Japan's budget outlook. Today's US economic data was mixed with jobless claims posting an unexpected rise and LEI and the Philly Fed coming in stronger than expected. Today's US data fits with the Fed's forecast of improving US economy with limited jobs growth.
Today's US data:
Initial jobless claims for week ending 12/12 rose by 7k to 480k a reading of 470k was expected. Continuing jobless claims posted a slight rise to 5.19mln from 5.16mln last week. November leading indicators rose by 0.9%, a reading of 0.6% was expected. December Philly Fed rose to 20.4, a reading of 16.5 was expected.
Upcoming US data:
No major US data is due for release Friday.
JPY
JPY traded lower pressured by spillover from broad USD gains against Europe sparked by upbeat Fed outlook and downgrade of Greece's debt rating by S&P. JPY was also pressured by continued uncertainty about the Japanese budget outlook. Japan says that its 2010/11 budget will be at ¥92trln. MOF officials said that Japanese government needs to cut at least 3trln from the budget to keep bond issuance below ¥44trln. The ratings agency Fitch said that Japan's debt rating may be downgraded if bond issuance rises above this level. Japan's national Strategy Minister Kan said that the weaker JPY is desirable and he welcomes USD rise to 90.00. According to Kan 90 is the rate that many Japanese companies assume in their business plans for USD/JPY. JPY downside was limited by gains in cross trade to Europe and the commodity currencies with EUR/JPY trading 1% lower in reaction to the Greek debt downgrade. Focus turns to the conclusion of the BOJ policy meeting Friday. Earlier in the month the BOJ elected to ease monetary policy and provide additional funding to try to weaken the JPY and combat deflation. The trade expects the BOJ to keep monetary policy unchanged. In light of recent weakness of the JPY the BOJ is unlikely to make reference to the JPY.
On December 18th revised October leading indicators will be released expected at 2.5 compared to 4.2 last month.
Key technical levels to watch in USD/JPY include support at 89.35 the December 16th low with resistance at 90.40 the December 7th high and 90.86 the November 6th high.
091217_dailyfx_1
EUR
EUR traded at a three-month low versus the USD pressured by S&P downgrade of Greece's debt rating and speculation that upbeat assessment of US economic outlook by the Fed sets the stage for the beginning of the Fed's tightening cycle. General consensus is the Fed will begin to gradually raise interest rates mid 2010. Much of the recent weakness in the USD is attributed to speculation that the Fed would keep interest rates low possibly into 2011. The outlook for low US yields encouraged funding of carry trades in the USD. The change in the outlook for the timing of Fed rate hikes sparked unwind of USD carry trades boosting demand for the USD. EUR was also pressured by report that construction output declined for the six month in a row. November construction output declined by 0.6%. The decline in EU construction output generates concern about the strength of the EU economic recovery and the report may dampen expectations of a more rapid withdrawal stimulus by the ECB. Concern about the deterioration of sovereign debt outlook in the EU will also limit the ECB's ability to tighten monetary policy. There is a clear change in sentiment and focus in Forex trade away from concern about rising US budget deficits and low US interest rates to debt troubles in EU. Uncertainty about sovereign debt risks in the EU generates concern about the stability of European monetary Union and the credibility of the EUR. The EUR looks much less attractive as an alternative to USD as a reserve currency in light of sovereign debt worries in the EU.
The technical outlook for the EUR is negative as the EUR breaks trend line support. Expect EUR support at 1.4175 the September 1st low with resistance at 14531 the December 17th high.
091217_dailyfx_2
GBP
GBP traded lower pressured by report of weaker than expected UK retail sales, S&P downgrade of Greece's debt and speculation that the Fed will begin to gradually raise interest rates mid 2010. UK November retail sales declined by 0.3%. December CBI sales were unchanged at +13. The decline in retail sales and lack of improvement and CBI sales generates concern about the outlook for the UK recovery. GBP remains vulnerable to uncertainty about BOE policy outlook. The BOE is likely to be the last central bank to begin to withdraw stimulus and this means that yield differential is moving in favor of the USD. Recent UK economic data however may encourage the BOE to pause in its asset purchase plan and quantitative ease as the UK labor market is stabilizing and inflation rising. Wednesday the UK reported that the job claimant count fell for the first time since February 2008. UK November CPI rose at an annual rate of 1.9% which brings the UK inflation rate close to the BOE's 2% target. Last week the BOE left interest rate policy unchanged and said it will maintain its current level of asset purchases. The BOE left interest rates unchanged at a record low 0.5% and the level of asset purchases at £200bln. The BOE is expected to wait until the release of the February inflation report before it decides to make any adjustments in monetary policy or in the size of its asset purchase plan. The BOE's Barker said the BOE must be cautious of how much farther to expand its bond purchase plan. Today's UK data shows that UK consumer remains retrenched and this suggests that UK recovery will be weak. In light of the Feds upbeat assessment of the US economic outlook growth differential and yield differential are moving more in favor of the USD.
The technical outlook for GBP is negative as GBP trades below 1.6100. Expect near-term support at 1.6020 with resistance at 1.6240.
091217_dailyfx_3
CAD
CAD traded lower despite report of higher than expected Canadian inflation and strong net foreign investment flows. CAD was pressured by weaker equity market trade and spillover from broad USD strength against Europe. Canada's inflation rose more than expected and foreign demand remains strong for Canadian bonds. Canada's November CPI rose by 0.5% m/m and 1% y/y with core inflation at 0.4% m/m and 1.5% y/y. Despite the rise in Canada's inflation the BOC is expected to maintain low yields through mid-2010. Net foreign investment flows to Canada rose by 5.81bln in October the trade had expected a 5bln reading. This week's economic data from Canada points towards quicker economic recovery with manufacturing shipments and leading indicators coming in higher than expectation and inflation rising faster than expected. It's not clear whether the improved outlook for the US economy will boost demand for the CAD on speculation that economic growth in North America is starting to accelerate or if as in today's trade the focus is on the prospects for US interest rates to rise sooner than in Europe and Canada. Yield differential is emerging as the key short-term driving factor for Forex trade and the CAD.
The technical outlook for CAD is negative as USD/CAD consolidates trades above 1.0700. Look for near-term support at 1.0552 the December 15th low with resistance at 1.0780 the November 9th high 1.0855 November 3rd high.
091217_dailyfx_4
AUD
AUD traded sharply lower pressured by weaker global equity market trade and speculation that US and Australian yield gap is set to narrow as the Fed lays the foundation for future rate hikes and the RBA moves towards steady policy. As noted above the Fed indicated greater optimism about the US recovery and this is seen by many as the beginning of the end of easy Fed monetary policy. The Fed statement generates speculation that the timeframe for Fed rate hikes will be moved forward in 2010. Although the RBA was the first major industrialized central bank to hike interest rates this year recent statements from the RBA suggest that further rate hikes are less certain. Wednesday the RBA's deputy governor Battelino said that Australian interest rates are back in the normal range and he sees less need for a rate hike if loan rates keep rising. His comments follow Tuesday's release of the RBA policy minutes for December. The RBA policy minutes were seen as less hawkish and dampen speculation that the RBA will hike rates aggressively at the start of 2010. The minutes for the December RBA policy meeting said that arguments for a rate hike are finely balanced and that the current rate structure is less accommodative. In addition to Australia's economic data was mixed with industrial activity up 2.2 points to 50.4 and November merchandise imports declining by 2%. Wednesday Australia reported weaker than expected rise in Q3 GDP. There was little reaction to report that the RBA sold A$313 mln in November. This was slightly higher than the is A$307mln in sales in October but the size of the sales does not indicate the RBA is aggressively intervening to try and weaken the AUD. AUD remains vulnerable to diminished RBA rate hike speculation and speculation that Fed is moving closer to the end of its ease cycle.
The technical outlook for the AUD is negative as the AUD drops below above 9100. Expect AUD support at 8755 the October 6th low with resistance at 9004 the December 17th high.
091217_dailyfx_5
Friday, December 18, 2009
WORLD FOREX: Dollar Surges As Demand For Risk Wanes
-The dollar surged Thursday as demand for risk waned amid lingering global credit concerns and continued reaction to the Federal Reserve's optimistic view on the U.S. economy.
The rally picked up steam in New York as investors scurried to cover bets against the dollar, sending the euro at one point to $1.4304, its lowest level since Sept. 4. The dollar traded above 90 yen for the first time in a week and reached the highest level in more than three months against a basket of six currencies.
The rally picked up steam in New York as investors scurried to cover bets against the dollar, sending the euro at one point to $1.4304, its lowest level since Sept. 4. The dollar traded above 90 yen for the first time in a week and reached the highest level in more than three months against a basket of six currencies.
Asian forex market wrap: wild ride for CHF and JPY crosses
* Rumours of coup in Pakistan trigger huge stops in EUR/CHF
* JPY crosses fall hard as risk aversion returns
* BoJ leave rates unchanged and easy monetary conditions remain
* Regional stockmarkets are presently around 0.75% lower
* Gold has added just $1 to $1108/oz
There has been a wild ride today for all of the major currencies with the GBP probably being the most sedate.
A good sized selling flow in AUD/JPY set the ball rolling this morning. This drove the AUD/USD below its 100-day MA at .8850, which was also the NY low, which in turn saw more stop loss selling emerge. USD/JPY then started to slide and when the Pakistan rumour hit the market, the selling of JPY crosses intensified even further. USD/JPY bottomed out at 89.00 and AUD/USD at .8812. Denials of the rumour led to some sharp short covering.
USD/CHF and EUR/CHF were also major movers in the morning. The cross fell below 1.5000 on the rumours and when the SNB didn’t emerge, EUR/CHF quickly fell 100 pips.
EUR/USD fell to its session low at the height of the cross selling but the bids at 1.4300 again proved very solid and there has been a big bounce of over 100 pips.
GBP has remained fairly quiet, obviously volatile on the crosses when the big moves were taking place.
Ranges: EUR/USD 1.4308/1.4411; EUR/CHF 1.4907/1.5026; USD/CHF 1.0389/1.0495; USD/JPY 88.96/90.04; EUR/JPY 127.35/129.37; AUD/USD .8812/.8902; Cable 1.6114/1.6218.
* JPY crosses fall hard as risk aversion returns
* BoJ leave rates unchanged and easy monetary conditions remain
* Regional stockmarkets are presently around 0.75% lower
* Gold has added just $1 to $1108/oz
There has been a wild ride today for all of the major currencies with the GBP probably being the most sedate.
A good sized selling flow in AUD/JPY set the ball rolling this morning. This drove the AUD/USD below its 100-day MA at .8850, which was also the NY low, which in turn saw more stop loss selling emerge. USD/JPY then started to slide and when the Pakistan rumour hit the market, the selling of JPY crosses intensified even further. USD/JPY bottomed out at 89.00 and AUD/USD at .8812. Denials of the rumour led to some sharp short covering.
USD/CHF and EUR/CHF were also major movers in the morning. The cross fell below 1.5000 on the rumours and when the SNB didn’t emerge, EUR/CHF quickly fell 100 pips.
EUR/USD fell to its session low at the height of the cross selling but the bids at 1.4300 again proved very solid and there has been a big bounce of over 100 pips.
GBP has remained fairly quiet, obviously volatile on the crosses when the big moves were taking place.
Ranges: EUR/USD 1.4308/1.4411; EUR/CHF 1.4907/1.5026; USD/CHF 1.0389/1.0495; USD/JPY 88.96/90.04; EUR/JPY 127.35/129.37; AUD/USD .8812/.8902; Cable 1.6114/1.6218.
FOREX-Swissie off highs but dollar slips in bumpy market
Swiss franc up as euro, dollar longs liquidated
Currencies
* Pakistan coup rumour fuels Swissie move, rumour denied
* Cross/yen falls but recovers on investor short-covering
* Dollar falls versus yen and euro in whippy market
By Kaori Kaneko
TOKYO, Dec 18 (Reuters) - The Swiss franc rose on Friday as investors unwound long euro positions in the approach to the year-end, helped by rumours of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it up.
In turbulence that also sent the dollar and other currencies down against the low-yielding yen, the euro fell to 1.4910 francs, its weakest level since March when the Swiss National Bank intervened to sell francs after announcing steps to fight deflation.
The dollar remained under pressure but the euro later recovered to stand just 0.3 percent lower on the day at 1.4968 francs EURCHF=R, with traders edgy the central bank might opt to intervene later to bring it above the 1.50 francs threshold.
The yen also later gave up the steepest of its gains on crosses such as the Australian dollar perceived as riskier trades, which have also been hit against the dollar this week as investors close out long positions for the year.
"I get the impression that market players are not wasting time to clean up their positions as we have only a few more days," a hedge fund sales trader for a Japanese bank said.
"Today's move in euro/Swiss, dollar/yen and cross/yen are all part of that last-minute liquidation."
The Swiss franc had gained on Thursday after a one-year tender by the European Central Bank, as banks in the eurozone sold euros to buy francs for Swiss franc-denominated loans. [ID:nLDE5BF21L]
Yen crosses fell in early trade as a weak day on Wall Street set the market up for closing out riskier positions. Talk of a coup in Pakistan fuelled that sentiment, helping send the euro even lower and triggering sell orders below 1.50 francs.
A spokesman for Pakistani President Asif Ali Zardari dismissed the coup rumours that started after a government minister suspected of corruption was stopped from leaving the country, saying there was no coup. [ID:nSGE5BH00F]
"Stops below 1.50 francs accelerated falls in a market with low liquidity and spurred risk avoiding trade at the year-end," said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking Company.
Forex moves have become more erratic as dealers tend to be unwilling to hold positions for long before the year's close.
"In this thin market, it's no surprise that the market could be volatile. And since there is no clear direction now in the market, stops could play a major role," said a trader at a Japanese trust bank.
The net result of a series of position liquidations was the dollar retreating from three month highs hit the previous day.
The euro, which struggled on Thursday after S&P became the second rating agency this month to downgrade Greece, rose 0.3 percent to $1.4383 EUR= after falling to $1.4304 the previous day, its lowest since early September.
The dollar index, a gauge of the greenback's performance against other six major currencies, fell 0.3 percent to 77.498, off Thursday's high of 77.943, its highest since early September.
Yen crosses fluctuated but came off the steepest of their earlier lows on short-covering.
The euro was steady on the day at 128.90 yen EURJPY=R, sterling slipped 0.2 percent GBPJPY=R and the Australian dollar fell 0.2 percent AUDJPY=R.
The Bank of Japan voted as expected to keep its overnight call rate target at 0.1 percent on Friday and said it would not tolerate deflation, backing concerns from the government and potentially setting the scene for more easing. [ID:nTKV006319]
BOJ Governor Masaaki Shirakawa holds a news conference later with embargoed comments expected to come out some time after 4:15 p.m. (0715 GMT) and markets will be watching for hints on policy.
The yen showed little reaction to the decision, and the dollar was down 0.4 percent at 89.62 yen JPY=.
Currencies
* Pakistan coup rumour fuels Swissie move, rumour denied
* Cross/yen falls but recovers on investor short-covering
* Dollar falls versus yen and euro in whippy market
By Kaori Kaneko
TOKYO, Dec 18 (Reuters) - The Swiss franc rose on Friday as investors unwound long euro positions in the approach to the year-end, helped by rumours of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it up.
In turbulence that also sent the dollar and other currencies down against the low-yielding yen, the euro fell to 1.4910 francs, its weakest level since March when the Swiss National Bank intervened to sell francs after announcing steps to fight deflation.
The dollar remained under pressure but the euro later recovered to stand just 0.3 percent lower on the day at 1.4968 francs EURCHF=R, with traders edgy the central bank might opt to intervene later to bring it above the 1.50 francs threshold.
The yen also later gave up the steepest of its gains on crosses such as the Australian dollar perceived as riskier trades, which have also been hit against the dollar this week as investors close out long positions for the year.
"I get the impression that market players are not wasting time to clean up their positions as we have only a few more days," a hedge fund sales trader for a Japanese bank said.
"Today's move in euro/Swiss, dollar/yen and cross/yen are all part of that last-minute liquidation."
The Swiss franc had gained on Thursday after a one-year tender by the European Central Bank, as banks in the eurozone sold euros to buy francs for Swiss franc-denominated loans. [ID:nLDE5BF21L]
Yen crosses fell in early trade as a weak day on Wall Street set the market up for closing out riskier positions. Talk of a coup in Pakistan fuelled that sentiment, helping send the euro even lower and triggering sell orders below 1.50 francs.
A spokesman for Pakistani President Asif Ali Zardari dismissed the coup rumours that started after a government minister suspected of corruption was stopped from leaving the country, saying there was no coup. [ID:nSGE5BH00F]
"Stops below 1.50 francs accelerated falls in a market with low liquidity and spurred risk avoiding trade at the year-end," said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking Company.
Forex moves have become more erratic as dealers tend to be unwilling to hold positions for long before the year's close.
"In this thin market, it's no surprise that the market could be volatile. And since there is no clear direction now in the market, stops could play a major role," said a trader at a Japanese trust bank.
The net result of a series of position liquidations was the dollar retreating from three month highs hit the previous day.
The euro, which struggled on Thursday after S&P became the second rating agency this month to downgrade Greece, rose 0.3 percent to $1.4383 EUR= after falling to $1.4304 the previous day, its lowest since early September.
The dollar index, a gauge of the greenback's performance against other six major currencies, fell 0.3 percent to 77.498, off Thursday's high of 77.943, its highest since early September.
Yen crosses fluctuated but came off the steepest of their earlier lows on short-covering.
The euro was steady on the day at 128.90 yen EURJPY=R, sterling slipped 0.2 percent GBPJPY=R and the Australian dollar fell 0.2 percent AUDJPY=R.
The Bank of Japan voted as expected to keep its overnight call rate target at 0.1 percent on Friday and said it would not tolerate deflation, backing concerns from the government and potentially setting the scene for more easing. [ID:nTKV006319]
BOJ Governor Masaaki Shirakawa holds a news conference later with embargoed comments expected to come out some time after 4:15 p.m. (0715 GMT) and markets will be watching for hints on policy.
The yen showed little reaction to the decision, and the dollar was down 0.4 percent at 89.62 yen JPY=.
China Hires Pimco's Changhong Zhu To Manage Country's Giant Forex Reserves
It's been joked that PIMCO is the fourth branch of the US government, but it seems the kings of fixed income are doing well with the Chinese government as well.
Manager Changhong Zhu is being hired by China as its Chief Investment Officer, basically overseeing a staggering $2.3 trillion of forex reserves.
According to Bloomberg, Zhu joined PIMCO in 1999, and is a member of its investment committee.
Manager Changhong Zhu is being hired by China as its Chief Investment Officer, basically overseeing a staggering $2.3 trillion of forex reserves.
According to Bloomberg, Zhu joined PIMCO in 1999, and is a member of its investment committee.
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FOREX-Dollar lacklustre; Swiss franc off highs
Dollar pares losses on Iraq-Iran tensions
* Swiss franc pares gains;, euro at 1.4992 francs EURCHF=
* German Ifo index slightly firmer than expected
(Releads, updates prices)
By Tamawa Desai
LONDON, Dec 18 (Reuters) - The dollar was lacklustre against most major currencies apart from the yen on Friday as share prices recovered, while the Swiss franc pared gains after surging earlier in the session in thin trade.
The greenback, however, pared its losses against the euro late in European morning after an Iraqi official said Iranian troops had briefly entered Iraqi territory on Thursday and spent several hours at an Iraqi oilfield. [ID:nLDE5BH167]
By 1226 GMT, the euro was flat on the day at $1.4351 EUR= after the report, down from around $1.4380 beforehand.
The Swiss franc had risen as investors unwound long euro positions in the approach to the year-end, helped by rumours of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it up. [ID:nLDE5BD0AK]
The euro fell to 1.4910 francs, its weakest level since March when the Swiss National Bank (SNB) intervened to sell francs after announcing steps to fight deflation.
It was last at 1.4992 francs EURCHF=R, down 0.1 pct on the day, just shy of the SNB's perceived threshold of 1.50 francs.
"The markets are fairly illiquid, which is exaggerating moves," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "Momentum is key, and you don't want to go against momentum right now."
"There may not be much benefit for the SNB to intervene now, given the markets are so illiquid," he added.
But traders said the euro's rebound against the Swiss franc was partly on expectations the SNB would step in to sell its currency.
The euro also recovered ground after steep falls against the dollar and yen.
It showed little reaction to the German Ifo institute's sentiment index which rose to 94.7 in December, slightly higher than expectations for 94.5, and up from 93.9 the previous month. [ID:nBEB004418]
"From a historic perspective, the Ifo index is still at a moderate level. In this context, the ECB is not under pressure to shift gears on rates in the forseeable future," said Ulrich Wortberg, economist at Heleba.
The euro had struggled the previous day, falling to a low of $1.4304, after S&P became the second ratings firm this month to downgrade Greece.
The pair was on track for its third weekly fall in sucession.
European stocks .FTEU3 had risen 0.2 percent by midday trade, while U.S. stock futures SPc1 were up 0.4 percent
DOLLAR, YEN PRESSURED
The dollar index .DXY, a gauge of the greenback's performance against six major currencies, fell 0.2 percent to 77.545, off Thursday's peak of 77.943 which was its highest since early September.
Yen crosses, which fell sharply in the wake of euro/Swiss franc's fall, came off their lows on short-covering.
The euro was up 0.7 on the day at 129.80 yen EURJPY=R, sterling was also up 0.6 percent at 146.21 yen GBPJPY=R and the Australian dollar rose 0.7 percent AUDJPY=R.
The dollar was up 0.4 percent at 90.23 yen JPY=.
The Bank of Japan kept interest rates steady as expected, but in a surprise move, changed its definition of long-term price stability, saying it would not tolerate zero inflation or falling prices. [ID:nT289621]
BOJ Governor Masaaki Shirakawa said the new definition of long-term price stability did not mean monetary policy would be guided by short-term price moves alone. [ID:nTKU105765]
"While the shared concern about the deflation by both the government and the BoJ should limit the upward pressure on the yen, their commitment remains uncertain and poses near-term risk of disappointment and a rebound of the yen," said Barclays analysts in a note. (Additional reporting by Kaori Kaneko in Tokyo; Editing by Toby Chopra)
* Swiss franc pares gains;, euro at 1.4992 francs EURCHF=
* German Ifo index slightly firmer than expected
(Releads, updates prices)
By Tamawa Desai
LONDON, Dec 18 (Reuters) - The dollar was lacklustre against most major currencies apart from the yen on Friday as share prices recovered, while the Swiss franc pared gains after surging earlier in the session in thin trade.
The greenback, however, pared its losses against the euro late in European morning after an Iraqi official said Iranian troops had briefly entered Iraqi territory on Thursday and spent several hours at an Iraqi oilfield. [ID:nLDE5BH167]
By 1226 GMT, the euro was flat on the day at $1.4351 EUR= after the report, down from around $1.4380 beforehand.
The Swiss franc had risen as investors unwound long euro positions in the approach to the year-end, helped by rumours of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it up. [ID:nLDE5BD0AK]
The euro fell to 1.4910 francs, its weakest level since March when the Swiss National Bank (SNB) intervened to sell francs after announcing steps to fight deflation.
It was last at 1.4992 francs EURCHF=R, down 0.1 pct on the day, just shy of the SNB's perceived threshold of 1.50 francs.
"The markets are fairly illiquid, which is exaggerating moves," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "Momentum is key, and you don't want to go against momentum right now."
"There may not be much benefit for the SNB to intervene now, given the markets are so illiquid," he added.
But traders said the euro's rebound against the Swiss franc was partly on expectations the SNB would step in to sell its currency.
The euro also recovered ground after steep falls against the dollar and yen.
It showed little reaction to the German Ifo institute's sentiment index which rose to 94.7 in December, slightly higher than expectations for 94.5, and up from 93.9 the previous month. [ID:nBEB004418]
"From a historic perspective, the Ifo index is still at a moderate level. In this context, the ECB is not under pressure to shift gears on rates in the forseeable future," said Ulrich Wortberg, economist at Heleba.
The euro had struggled the previous day, falling to a low of $1.4304, after S&P became the second ratings firm this month to downgrade Greece.
The pair was on track for its third weekly fall in sucession.
European stocks .FTEU3 had risen 0.2 percent by midday trade, while U.S. stock futures SPc1 were up 0.4 percent
DOLLAR, YEN PRESSURED
The dollar index .DXY, a gauge of the greenback's performance against six major currencies, fell 0.2 percent to 77.545, off Thursday's peak of 77.943 which was its highest since early September.
Yen crosses, which fell sharply in the wake of euro/Swiss franc's fall, came off their lows on short-covering.
The euro was up 0.7 on the day at 129.80 yen EURJPY=R, sterling was also up 0.6 percent at 146.21 yen GBPJPY=R and the Australian dollar rose 0.7 percent AUDJPY=R.
The dollar was up 0.4 percent at 90.23 yen JPY=.
The Bank of Japan kept interest rates steady as expected, but in a surprise move, changed its definition of long-term price stability, saying it would not tolerate zero inflation or falling prices. [ID:nT289621]
BOJ Governor Masaaki Shirakawa said the new definition of long-term price stability did not mean monetary policy would be guided by short-term price moves alone. [ID:nTKU105765]
"While the shared concern about the deflation by both the government and the BoJ should limit the upward pressure on the yen, their commitment remains uncertain and poses near-term risk of disappointment and a rebound of the yen," said Barclays analysts in a note. (Additional reporting by Kaori Kaneko in Tokyo; Editing by Toby Chopra)
Forex: COP15: Obama Meets With Chinese In Final Push To Salvage Climate Deal
With just hours left at the UN Climate Change Conference in Copenhagen and an agreement on curbing global emissions "hanging in the balance," U.S. President Barack Obama met with Chinese Premier Wen Jiabao in an attempt to salvage a deal.
The White House said the two leaders "made progress" in a "constructive" discussion on topics raised by Obama in his speech to delegates from 192 nations in the Bella Center's plenary hall earlier in the day.
Asked if the two had achieved a breakthrough, the administration official said that talks produced a "step forward" and that Obama and Wen have urged negotiators to get together one-on-one after the meeting "to see if an agreement can be reached."
However, conflicting reports out of Copenhagen said that China and India have walked out of negotiations, with the support of Brazil.
Emerging economies are said to be furious over the inclusion of an "umbrella clause" requiring China and India to indicate when their greenhouse gas emissions would peak and submit to international monitoring of their emissions.
For its part, the U.S. contingent was upset that Wen skipped a high-level meeting earlier in the day with heads of state from twenty countries, sending his vice foreign minister instead.
A number of major roadblocks to an agreement were smoothed over in recent days, particularly on the thorny issue of who will fund a move to cleaner technologies for poorer nations.
Secretary of State Hillary Clinton announced Thursday that the U.S. would join other nations in raising $100 billion per year by 2020 to help poor nations deal with the impacts of climate change.
The meeting between Obama and Wen took place moments after Obama addressed a plenary session of the conference, saying that the U.S. intends to meet its responsibility to address climate change.
The president stressed that all major economies must put forward decisive national actions that will reduce their emissions, and begin to turn the corner on climate change. "I'm confident that America will fulfill the commitments that we have made: cutting our emissions in the range of 17 percent by 2020, and by more than 80 percent by 2050 in line with final legislation," said Obama.
"There are those developing countries that want aid with no strings attached, and no obligations with respect to transparency," Obama said, alluding to the Chinese. "The time for talk is over. This is the bottom line: We can embrace this accord, take a substantial step forward, continue to refine it and build upon its foundation."
Wen also addressed the morning session, talking about the Chinese commitment to curbing emissions.
"This is a voluntary action China has taken in the light of its national circumstances. We have not attached any condition to the target, nor have we linked it to the target of any other country. We will honor our word with real action," Wen said. "Whatever outcome this conference may produce, we will be fully committed to achieving and even exceeding the target."
The White House said the two leaders "made progress" in a "constructive" discussion on topics raised by Obama in his speech to delegates from 192 nations in the Bella Center's plenary hall earlier in the day.
Asked if the two had achieved a breakthrough, the administration official said that talks produced a "step forward" and that Obama and Wen have urged negotiators to get together one-on-one after the meeting "to see if an agreement can be reached."
However, conflicting reports out of Copenhagen said that China and India have walked out of negotiations, with the support of Brazil.
Emerging economies are said to be furious over the inclusion of an "umbrella clause" requiring China and India to indicate when their greenhouse gas emissions would peak and submit to international monitoring of their emissions.
For its part, the U.S. contingent was upset that Wen skipped a high-level meeting earlier in the day with heads of state from twenty countries, sending his vice foreign minister instead.
A number of major roadblocks to an agreement were smoothed over in recent days, particularly on the thorny issue of who will fund a move to cleaner technologies for poorer nations.
Secretary of State Hillary Clinton announced Thursday that the U.S. would join other nations in raising $100 billion per year by 2020 to help poor nations deal with the impacts of climate change.
The meeting between Obama and Wen took place moments after Obama addressed a plenary session of the conference, saying that the U.S. intends to meet its responsibility to address climate change.
The president stressed that all major economies must put forward decisive national actions that will reduce their emissions, and begin to turn the corner on climate change. "I'm confident that America will fulfill the commitments that we have made: cutting our emissions in the range of 17 percent by 2020, and by more than 80 percent by 2050 in line with final legislation," said Obama.
"There are those developing countries that want aid with no strings attached, and no obligations with respect to transparency," Obama said, alluding to the Chinese. "The time for talk is over. This is the bottom line: We can embrace this accord, take a substantial step forward, continue to refine it and build upon its foundation."
Wen also addressed the morning session, talking about the Chinese commitment to curbing emissions.
"This is a voluntary action China has taken in the light of its national circumstances. We have not attached any condition to the target, nor have we linked it to the target of any other country. We will honor our word with real action," Wen said. "Whatever outcome this conference may produce, we will be fully committed to achieving and even exceeding the target."
Saturday, December 5, 2009
BALANCING RISK WITH REWARD IN FOREX: HOW TO BECOME A SUCCESSFUL TRADER
Risk is a permanent feature of forex trading. All traders know that profitability is the result of taking limited risk with great potential rewards, and even if many endeavors fail, we expect the ultimate tally to leave us in the black, and by a considerable margin in many cases. However, it is not true that all traders possess the necessary understanding of the relationship between risk and reward in forex. Often, a novice will have completely unfounded perceptions about the accuracy or predictive powers of analysis, and will attach much greater significance to his analytical scenarios than they merit in reality. The fact is that no trader can acquire a degree of knowledge that makes risk a negligible item in his analysis. Here we’ll discuss a few aspects of risk in forex, and offer some guidelines on how to accommodate them while trading.
Trade conservatively
The golden rule of trading is to be conservative. If you can ensure that you never lose money, even if you never aim at profits, it is highly likely that you account will be in the black eventually. On the other hand, if you constantly aim at one large profitable trade, and ignore the small losses in numerous trades, it is likely that most of the time your account will show a net loss. In shot, a successful trader is always a conservative individual when it comes to money management, although he may be a very different person in other aspects of his character.
Technical strategies should always consider the risk/reward outlook
Technical analysis spends a lot of time on determining indicators, constructing charts, and discussing price levels, but in fact much of trader’s misery would be eliminated if we could take a bit of care to ensure that our risk.reward outlook isnot random in each trade, and that basic discipline is maintained. Such an approach would help us survive many more mistakes than it would be in the opposite case.
Aim at steady growth, not at the jackpot
This is the first rule, stated in different words. In short, never aim at making it big in the forex market. The odds are high that you’ll end up a loser with this attitude. Instead aim at slow, but consistent, and low risk growth. Since you probably don’t have any extraordinary edge over the average trader (no magic indicator, no superhuman genius, or a machine-like mentality) it is better to remain calm and prudent in our interaction with the market.
Risk cannot be eliminated entirely
Risk will always be a part of trading, it has always been so. Do not trust in forex broker reviews which tell you that it is a one-way route with this or that strategy, or that forex traders are a blessed lot among humanity, privileged to take part in a massively profitable endeavor. You will create your chances, so prepare in advance, and take your risk with knowledge, so that you don’t end up being disappointed in your failure
Trade conservatively
The golden rule of trading is to be conservative. If you can ensure that you never lose money, even if you never aim at profits, it is highly likely that you account will be in the black eventually. On the other hand, if you constantly aim at one large profitable trade, and ignore the small losses in numerous trades, it is likely that most of the time your account will show a net loss. In shot, a successful trader is always a conservative individual when it comes to money management, although he may be a very different person in other aspects of his character.
Technical strategies should always consider the risk/reward outlook
Technical analysis spends a lot of time on determining indicators, constructing charts, and discussing price levels, but in fact much of trader’s misery would be eliminated if we could take a bit of care to ensure that our risk.reward outlook isnot random in each trade, and that basic discipline is maintained. Such an approach would help us survive many more mistakes than it would be in the opposite case.
Aim at steady growth, not at the jackpot
This is the first rule, stated in different words. In short, never aim at making it big in the forex market. The odds are high that you’ll end up a loser with this attitude. Instead aim at slow, but consistent, and low risk growth. Since you probably don’t have any extraordinary edge over the average trader (no magic indicator, no superhuman genius, or a machine-like mentality) it is better to remain calm and prudent in our interaction with the market.
Risk cannot be eliminated entirely
Risk will always be a part of trading, it has always been so. Do not trust in forex broker reviews which tell you that it is a one-way route with this or that strategy, or that forex traders are a blessed lot among humanity, privileged to take part in a massively profitable endeavor. You will create your chances, so prepare in advance, and take your risk with knowledge, so that you don’t end up being disappointed in your failure
FOREX-Dollar dips vs yen, steadies vs euro before US data
* Dollar dips vs yen on profit-taking before US data
* Japanese exporters' dollar offers seen above 88.50 yen
* Euro trims gains made on ECB's hint at future exit strategy
By Rika Otsuka
TOKYO, Dec 4 (Reuters) - The dollar dipped against the yen on Friday as traders took profits on the greenback's sharp rebound from a 14-year trough ahead of the U.S. government's monthly employment report later in the day.
The euro slipped against the yen after climbing sharply versus the Japanese currency the previous day when the European Central Bank suggested that it would gradually withdraw emergency liquidity from the system.
The European single currency on Thursday neared a 16-month high against the dollar around $1.5140 after ECB President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last. [ID:nECBNEWS]
But the euro soon lost steam as Trichet said liquidity moves should not be seen as any kind of a signal on interest rates. The ECB left rates at record low of 1.0 percent at Thursday's meeting. [ID:nGEE5B125T]
Market players' attention has now shifted to U.S. monthly jobs data for November.
"The market would react more to stronger-than-expected numbers as such figures would improve investor risk appetite, likely to trigger buying in higher-yielding currencies," said Tsutomu Soma, senior manager of foreign securities department at Okasan Securities.
The dollar fell 0.2 percent from late U.S. trade to 88.05 yen JPY=, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS.
The U.S. currency rose 1 percent against the yen the previous day after Bank of America (BAC.N) said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence. [ID:nN0250856]
Traders said Japanese exporters' dollar offers were lined up above 88.50 yen, keeping players hesitant about chasing the dollar higher.
* Japanese exporters' dollar offers seen above 88.50 yen
* Euro trims gains made on ECB's hint at future exit strategy
By Rika Otsuka
TOKYO, Dec 4 (Reuters) - The dollar dipped against the yen on Friday as traders took profits on the greenback's sharp rebound from a 14-year trough ahead of the U.S. government's monthly employment report later in the day.
The euro slipped against the yen after climbing sharply versus the Japanese currency the previous day when the European Central Bank suggested that it would gradually withdraw emergency liquidity from the system.
The European single currency on Thursday neared a 16-month high against the dollar around $1.5140 after ECB President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last. [ID:nECBNEWS]
But the euro soon lost steam as Trichet said liquidity moves should not be seen as any kind of a signal on interest rates. The ECB left rates at record low of 1.0 percent at Thursday's meeting. [ID:nGEE5B125T]
Market players' attention has now shifted to U.S. monthly jobs data for November.
"The market would react more to stronger-than-expected numbers as such figures would improve investor risk appetite, likely to trigger buying in higher-yielding currencies," said Tsutomu Soma, senior manager of foreign securities department at Okasan Securities.
The dollar fell 0.2 percent from late U.S. trade to 88.05 yen JPY=, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS.
The U.S. currency rose 1 percent against the yen the previous day after Bank of America (BAC.N) said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence. [ID:nN0250856]
Traders said Japanese exporters' dollar offers were lined up above 88.50 yen, keeping players hesitant about chasing the dollar higher.
FOREX-Dollar dips vs yen, steadies vs euro before US data
* Japanese exporters' dollar offers seen above 88.50 yen
* Euro trims gains made on ECB's hint at future exit strategy
By Rika Otsuka
TOKYO, Dec 4 (Reuters) - The dollar dipped against the yen on Friday as traders took profits on the greenback's sharp rebound from a recent 14-year trough ahead of the U.S. government's monthly employment report later in the day.
Higher-yielding currencies took a breather after a brisk rise against the yen in the last three days as investors became nervous about further purchases of riskier assets.
The yen has fallen broadly this week, reversing a surge the previous week, as the Bank of Japan took steps to attack deflationary pressures.
Market participants were increasingly nervous ahead of U.S. labour data after White House spokesman Robert Gibbs said on Thursday a recent private sector payroll report had signalled that the November unemployment level may tick up from October's 10.2 percent. [nN0397010].
Gibbs stressed his comments were not predicting the outcome of Friday's data but some players trimmed long positions in cross/yen.
"The market would react more to stronger-than-expected numbers as such figures would improve investor risk appetite, likely triggering buying in higher-yielding currencies," said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities.
The dollar fell 0.2 percent from late U.S. trade to 88.09 yen JPY=, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS.
The U.S. currency rose 1 percent against the yen the previous day after Bank of America (BAC.N) said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence. [ID:nN0250856]
Traders said Japanese exporters' dollar offers were lined up above 88.50 yen, keeping players hesitant about chasing the dollar higher.
BOJ SPECULATION
Market participants still believe the dollar is on a long downward trend against the yen, though it might have hit a near-term bottom.
The central bank decided to launch a new money market operation to supply around 10 trillion yen ($113 billion) in three-month funds but speculation has persisted that it could pump even more liquidity into the market.
"The yen has weakened against major currencies mainly on speculation the BOJ could flood the market with funds again, allowing people to embark on yen carry trades again," said a senior forex trader at a Japanese trust bank.
"But if something happens to shake investor confidence, that sort of speculation could easily fade away."
The euro was barely changed against the greenback at $1.5055 EUR=. It dipped 0.2 percent versus the yen to 132.67 yen EURJPY=R.
The euro had climbed sharply versus the Japanese currency the previous day when the European Central Bank suggested it would gradually withdraw emergency liquidity from the system. [ID:nECBNEWS]
The European single currency on Thursday neared a 16-month high against the dollar around $1.5140 after ECB President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last.
But the euro soon lost steam as Trichet said liquidity moves should not be seen as any kind of a signal on interest rates. The ECB left rates at record low of 1.0 percent at Thursday's meeting. [ID:nGEE5B125T]
The higher-yielding Australian dollar was down 0.2 percent to 81.37 yen AUDJPY=R.
Economist polled by Reuters gave a median estimate of 130,000 jobs lost in November, down from 190,000 in October, while November unemployment rate is forecasted to be unchanged at 10.2 percent. [ECI/US]
* Euro trims gains made on ECB's hint at future exit strategy
By Rika Otsuka
TOKYO, Dec 4 (Reuters) - The dollar dipped against the yen on Friday as traders took profits on the greenback's sharp rebound from a recent 14-year trough ahead of the U.S. government's monthly employment report later in the day.
Higher-yielding currencies took a breather after a brisk rise against the yen in the last three days as investors became nervous about further purchases of riskier assets.
The yen has fallen broadly this week, reversing a surge the previous week, as the Bank of Japan took steps to attack deflationary pressures.
Market participants were increasingly nervous ahead of U.S. labour data after White House spokesman Robert Gibbs said on Thursday a recent private sector payroll report had signalled that the November unemployment level may tick up from October's 10.2 percent. [nN0397010].
Gibbs stressed his comments were not predicting the outcome of Friday's data but some players trimmed long positions in cross/yen.
"The market would react more to stronger-than-expected numbers as such figures would improve investor risk appetite, likely triggering buying in higher-yielding currencies," said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities.
The dollar fell 0.2 percent from late U.S. trade to 88.09 yen JPY=, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS.
The U.S. currency rose 1 percent against the yen the previous day after Bank of America (BAC.N) said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence. [ID:nN0250856]
Traders said Japanese exporters' dollar offers were lined up above 88.50 yen, keeping players hesitant about chasing the dollar higher.
BOJ SPECULATION
Market participants still believe the dollar is on a long downward trend against the yen, though it might have hit a near-term bottom.
The central bank decided to launch a new money market operation to supply around 10 trillion yen ($113 billion) in three-month funds but speculation has persisted that it could pump even more liquidity into the market.
"The yen has weakened against major currencies mainly on speculation the BOJ could flood the market with funds again, allowing people to embark on yen carry trades again," said a senior forex trader at a Japanese trust bank.
"But if something happens to shake investor confidence, that sort of speculation could easily fade away."
The euro was barely changed against the greenback at $1.5055 EUR=. It dipped 0.2 percent versus the yen to 132.67 yen EURJPY=R.
The euro had climbed sharply versus the Japanese currency the previous day when the European Central Bank suggested it would gradually withdraw emergency liquidity from the system. [ID:nECBNEWS]
The European single currency on Thursday neared a 16-month high against the dollar around $1.5140 after ECB President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last.
But the euro soon lost steam as Trichet said liquidity moves should not be seen as any kind of a signal on interest rates. The ECB left rates at record low of 1.0 percent at Thursday's meeting. [ID:nGEE5B125T]
The higher-yielding Australian dollar was down 0.2 percent to 81.37 yen AUDJPY=R.
Economist polled by Reuters gave a median estimate of 130,000 jobs lost in November, down from 190,000 in October, while November unemployment rate is forecasted to be unchanged at 10.2 percent. [ECI/US]
Taiwan sits on record-high forex reserves in November
Taipei, Dec. 4 (CNA) Taiwan recorded a foreign exchange reserve of US$347.19 billion as of the end of November, up US$5.968 billion from the previous month, the Taipei-based Central Bank of the Republic of China reported Friday. The bank attributed the increase of forex reserves growth last month to the strong appreciation of major currencies, such as the euro and Japanese yen, against the U.S. dollar, apart from returns from foreign exchange reserve management.
The amount of reserves Taiwan held ranked the country as the world's fourth-largest forex holder in November, after China, Japan and Russia, the bank said.
The amount of reserves Taiwan held ranked the country as the world's fourth-largest forex holder in November, after China, Japan and Russia, the bank said.
2nd UPDATE: China: To Keep Way Of Managing Forex Reserves
By Terence Poon and Li Liu
Of DOW JONES NEWSWIRES
BEIJING (Dow Jones)--China on Friday sought to reassure the outside world it is taking a conservative approach to managing its massive foreign-exchange reserves, with the government saying it hasn't made big changes to its strategy and the U.S. dollar remains a central asset.
China holds the world's biggest reserves of foreign currency--US$2.27 trillion at the end of September--and so is under intense scrutiny from both global investors concerned about its moves in financial markets and Chinese citizens worried about their nation's wealth
Of DOW JONES NEWSWIRES
BEIJING (Dow Jones)--China on Friday sought to reassure the outside world it is taking a conservative approach to managing its massive foreign-exchange reserves, with the government saying it hasn't made big changes to its strategy and the U.S. dollar remains a central asset.
China holds the world's biggest reserves of foreign currency--US$2.27 trillion at the end of September--and so is under intense scrutiny from both global investors concerned about its moves in financial markets and Chinese citizens worried about their nation's wealth
FOREX-Dollar flat ahead of U.S. jobs; Canada dlr jumps
* U.S. economy seen losing 130,000 jobs in November
* China says dollar still at heart of its FX reserves
(Releads, updates prices, adds quote, changes byline)
By Jamie McGeever
LONDON, Dec 4 (Reuters) - The dollar held steady against a basket of major currencies on Friday as investors waited for the U.S. government's monthly employment report to offer clues to the potential pace of tightening in U.S. monetary policy.
Economists polled by Reuters forecast the U.S. economy lost 130,000 jobs in November, compared with 190,000 in October, while the November unemployment rate was forecast to be unchanged at 10.2 percent.
Traders were wary, however, after White House spokesman Robert Gibbs said on Thursday that Wednesday's ADP private sector payroll report had signalled the November unemployment level may tick up.
The Canadian dollar, meanwhile, jumped to a session high after Canadian jobs figures for November came in far stronger than expected: 79,000 jobs were created last month, more than five times the 15,000 forecast in a Reuters poll of analysts.
China said earlier on Friday it would look to diversify its huge foreign exchange reserves across currencies and high quality assets, but the dollar would remain the anchor currency.
"The (China) story remains one of continued diversification away from the dollar but the process will be relatively slow. But the main focus today is very much on payrolls," said Robert Minikin, senior FX strategist at Standard Chartered in London.
"On the whole, the dollar is putting in a bit of a bid here, led by dollar/yen. The retracements have been quite shallow, so there seems to be quite a lot of momentum behind the move."
At 1220 GMT, the dollar was flat against a currency basket .DXY at 74.622, and the euro was steady at $1.5071 EUR=.
The dollar was up 0.2 percent against the yen at 88.37 yen, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS after the Bank of Japan on Tuesday announced extra liquidity-boosting steps to fight deflation.
The Canadian dollar rose to a session high of C$1.0470 per U.S. dollar CAD=, up more than half a percent on the day and up from around C$1.0530 before the Canadian data were released.
The unemployment rate dipped to 8.5 percent from 8.6 percent. Analysts had expected a rise to 8.7 percent.
FUNDAMENTAL REACTION
There was little immediate reaction on currency markets to the statement from China's State Administration of Foreign Exchange on the country's reserves, as all eyes were on the U.S. payrolls number at 1330 GMT. [ID:nPEK241002]
Some analysts believe a positive number may weigh on the dollar as it feeds investor risk appetite for stocks, commodities and non-dollar currencies.
But others suggest the dollar and financial markets may be reacting to fundamental data in a more predictable fashion and that a brighter picture of the U.S. labour market would lift expectations of Fed tightening and therefore support the dollar.
"As we approach year-end, people will start to anticipate ... Fed tightening and interpret good U.S. data as an indication of a possible early Fed exit," said Adarsh Sinha, currency strategist at Barclays Capital in London.
Expectations U.S. interest rates will stay ultra-low for some time have encouraged investors to use the dollar as a funding currency to invest in riskier and higher-yielding currencies.
The euro neared a 16-month high against the dollar around $1.5140 on Thursday after European Central Bank President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last.
But it lost steam as Trichet said liquidity moves should not be seen as a signal on interest rates. The ECB left rates at a record low 1.0 percent at Thursday's meeting.
* China says dollar still at heart of its FX reserves
(Releads, updates prices, adds quote, changes byline)
By Jamie McGeever
LONDON, Dec 4 (Reuters) - The dollar held steady against a basket of major currencies on Friday as investors waited for the U.S. government's monthly employment report to offer clues to the potential pace of tightening in U.S. monetary policy.
Economists polled by Reuters forecast the U.S. economy lost 130,000 jobs in November, compared with 190,000 in October, while the November unemployment rate was forecast to be unchanged at 10.2 percent.
Traders were wary, however, after White House spokesman Robert Gibbs said on Thursday that Wednesday's ADP private sector payroll report had signalled the November unemployment level may tick up.
The Canadian dollar, meanwhile, jumped to a session high after Canadian jobs figures for November came in far stronger than expected: 79,000 jobs were created last month, more than five times the 15,000 forecast in a Reuters poll of analysts.
China said earlier on Friday it would look to diversify its huge foreign exchange reserves across currencies and high quality assets, but the dollar would remain the anchor currency.
"The (China) story remains one of continued diversification away from the dollar but the process will be relatively slow. But the main focus today is very much on payrolls," said Robert Minikin, senior FX strategist at Standard Chartered in London.
"On the whole, the dollar is putting in a bit of a bid here, led by dollar/yen. The retracements have been quite shallow, so there seems to be quite a lot of momentum behind the move."
At 1220 GMT, the dollar was flat against a currency basket .DXY at 74.622, and the euro was steady at $1.5071 EUR=.
The dollar was up 0.2 percent against the yen at 88.37 yen, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS after the Bank of Japan on Tuesday announced extra liquidity-boosting steps to fight deflation.
The Canadian dollar rose to a session high of C$1.0470 per U.S. dollar CAD=, up more than half a percent on the day and up from around C$1.0530 before the Canadian data were released.
The unemployment rate dipped to 8.5 percent from 8.6 percent. Analysts had expected a rise to 8.7 percent.
FUNDAMENTAL REACTION
There was little immediate reaction on currency markets to the statement from China's State Administration of Foreign Exchange on the country's reserves, as all eyes were on the U.S. payrolls number at 1330 GMT. [ID:nPEK241002]
Some analysts believe a positive number may weigh on the dollar as it feeds investor risk appetite for stocks, commodities and non-dollar currencies.
But others suggest the dollar and financial markets may be reacting to fundamental data in a more predictable fashion and that a brighter picture of the U.S. labour market would lift expectations of Fed tightening and therefore support the dollar.
"As we approach year-end, people will start to anticipate ... Fed tightening and interpret good U.S. data as an indication of a possible early Fed exit," said Adarsh Sinha, currency strategist at Barclays Capital in London.
Expectations U.S. interest rates will stay ultra-low for some time have encouraged investors to use the dollar as a funding currency to invest in riskier and higher-yielding currencies.
The euro neared a 16-month high against the dollar around $1.5140 on Thursday after European Central Bank President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last.
But it lost steam as Trichet said liquidity moves should not be seen as a signal on interest rates. The ECB left rates at a record low 1.0 percent at Thursday's meeting.
Forex: Iraqi VP Postpones Veto Decision Until Sunday
Iraqi Vice-President Tariq al-Hashemi announced Thursday he had postponed until Sunday a decision on whether to accept or veto an amended version of the country's election law for next year's crucial parliamentary polls, after a court gave him more time.
Hashemi, who is one of the three members of the Presidential Council, vetoed an original election bill as it did not allocate seats to Iraqis who fled abroad, many of them Sunnis. According to UN estimates, 2.5 million Iraqis, most of them Sunnis, live abroad.
Instead of addressing his concerns, Iraq's majority Shias and minority Kurds conspired to pass an amended law that stripped parliamentary seats from some Sunni provinces and allocated them to northern Kurdish provinces.
Stating that the reasons why he vetoed the law still existed, Hashemi said he considers these reasons to be principles that he will not relinquish as they concern all Iraqi citizens.
However, the Vice-President said he was still looking for a political reconciliation among all parties which allowed the country to move beyond this impasse and that he would only use his veto as a last resort. Yet, he warned that time was running out to reach a solution before Sunday.
Hashemi had 10 days from November 23, when parliament approved the amended law to veto it, before the High Judicial Council extended the deadline to Sunday. The Council said since the 10-day period would legally end Friday, a decision could await the subsequent working day after the week-end holidays Friday and Saturday.
Hashemi's November 18 veto triggered a crisis with the Electoral Commission halting its work organizing the polls until the law was finalized. According to the constitution, national elections must be held before January 31.
Last week, lawmakers passed an amended version of the law, which was reviewed by Iraq's three-member Presidential Council, comprising Jalal Talabani, the Kurdish President, and vice-Presidents Adel Abdel Mehdi, a Shia Arab besides Hashemi.
Talabani and Mehdi ratified the amended election law last week awaiting Hashemi's decision.
Under the constitution, a veto by any one member in the Presidential Council would be sufficient to send the bill back to parliament. If Hashemi uses his second veto, lawmakers can overturn it with a 60 per cent majority vote in parliament. The Shia-Kurdish alliance has nearly 30 votes over the threshold in the 275-seat assembly.
Meanwhile, the United States and the United Nations are pressurizing Iraqi politicians to avoid a delay that could affect Washington's plans to end combat operations in Iraq in August.
Ad Melkert, the Special Representative of the UN Secretary-General for Iraq (SRSG), held talks with Prime Minister Nouri Al-Maliki, Hashemi and other parliamentary officials in a bid to end the political deadlock.
The UN Assistance Mission in Iraq (UNAMI) said in a statement that it believed February 27, 2010 would be "a feasible option for practical and constitutional reasons" to hold elections.
If the parliamentary polls does not materialize before the end of February or beginning of March, it could potentially create a political vacuum as the mandate of al-Maliki's government expires on March 16.
Hashemi, who is one of the three members of the Presidential Council, vetoed an original election bill as it did not allocate seats to Iraqis who fled abroad, many of them Sunnis. According to UN estimates, 2.5 million Iraqis, most of them Sunnis, live abroad.
Instead of addressing his concerns, Iraq's majority Shias and minority Kurds conspired to pass an amended law that stripped parliamentary seats from some Sunni provinces and allocated them to northern Kurdish provinces.
Stating that the reasons why he vetoed the law still existed, Hashemi said he considers these reasons to be principles that he will not relinquish as they concern all Iraqi citizens.
However, the Vice-President said he was still looking for a political reconciliation among all parties which allowed the country to move beyond this impasse and that he would only use his veto as a last resort. Yet, he warned that time was running out to reach a solution before Sunday.
Hashemi had 10 days from November 23, when parliament approved the amended law to veto it, before the High Judicial Council extended the deadline to Sunday. The Council said since the 10-day period would legally end Friday, a decision could await the subsequent working day after the week-end holidays Friday and Saturday.
Hashemi's November 18 veto triggered a crisis with the Electoral Commission halting its work organizing the polls until the law was finalized. According to the constitution, national elections must be held before January 31.
Last week, lawmakers passed an amended version of the law, which was reviewed by Iraq's three-member Presidential Council, comprising Jalal Talabani, the Kurdish President, and vice-Presidents Adel Abdel Mehdi, a Shia Arab besides Hashemi.
Talabani and Mehdi ratified the amended election law last week awaiting Hashemi's decision.
Under the constitution, a veto by any one member in the Presidential Council would be sufficient to send the bill back to parliament. If Hashemi uses his second veto, lawmakers can overturn it with a 60 per cent majority vote in parliament. The Shia-Kurdish alliance has nearly 30 votes over the threshold in the 275-seat assembly.
Meanwhile, the United States and the United Nations are pressurizing Iraqi politicians to avoid a delay that could affect Washington's plans to end combat operations in Iraq in August.
Ad Melkert, the Special Representative of the UN Secretary-General for Iraq (SRSG), held talks with Prime Minister Nouri Al-Maliki, Hashemi and other parliamentary officials in a bid to end the political deadlock.
The UN Assistance Mission in Iraq (UNAMI) said in a statement that it believed February 27, 2010 would be "a feasible option for practical and constitutional reasons" to hold elections.
If the parliamentary polls does not materialize before the end of February or beginning of March, it could potentially create a political vacuum as the mandate of al-Maliki's government expires on March 16.
Forex: Payroll Employment Shows Modest Decrease In November
Employment was nearly unchanged in the month of November, according to a report released by the Labor Department on Friday, with the dramatic slowdown in the pace of job losses likely to generate some optimism about the outlook for the labor market.
The unemployment rate also unexpectedly dipped to 10.0% - encouraging hope that the labor market is starting to stabilize and that job growth will soon begin again.
The Labor Department revealed that non-farm payrolls edged down by 11,000 in November. Most economists had expected a decline of at least 100,000.
Not only did this month's report come in better than expected, revised figures for the previous couple months showed fewer job losses in October and September than people had previously thought.
Updated data showed 111,000 job losses in October and 139,000 job losses in September.
Previously, October's job losses had been reported as 190,000 and September's decline was put at 219,000.
The unemployment rate slipped to 10.0% after jumping to a 26-year high of 10.2% in October. Economists had expected the unemployment rate to remain stable.
Joel Naroff, chief economist at Naroff Economic Advisors, said, "Wow! That is the only description I can make of the November jobs report."
"Payrolls were down, but by a minimal amount," Naroff added. "Just as good were the revisions to previous months, which now show significantly smaller employment losses."
Job losses have been easing over the last several months. November represented the fifth straight month with a lower number of payroll declines.
The average workweek ticked up to 33.2 hours, from last month's level of 33.0 hours. Average hourly earnings also ticked up, rising to $18.74 from $18.73.
Construction, manufacturing and retail continued to lose jobs in the month. However, this was largely offset by gains in the professional and business services and education and health services sectors. Government jobs also ticked up slightly.
Construction lost 27,000 jobs, while manufacturing shed 41,000 jobs. Retail trade experienced a 15,000 slide in payrolls.
Professional and business services saw employment rise by 86,000, while payrolls for the education and health services sector were up by 40,000.
The government segment saw a 7,000 increase in jobs.
The unemployment rate also unexpectedly dipped to 10.0% - encouraging hope that the labor market is starting to stabilize and that job growth will soon begin again.
The Labor Department revealed that non-farm payrolls edged down by 11,000 in November. Most economists had expected a decline of at least 100,000.
Not only did this month's report come in better than expected, revised figures for the previous couple months showed fewer job losses in October and September than people had previously thought.
Updated data showed 111,000 job losses in October and 139,000 job losses in September.
Previously, October's job losses had been reported as 190,000 and September's decline was put at 219,000.
The unemployment rate slipped to 10.0% after jumping to a 26-year high of 10.2% in October. Economists had expected the unemployment rate to remain stable.
Joel Naroff, chief economist at Naroff Economic Advisors, said, "Wow! That is the only description I can make of the November jobs report."
"Payrolls were down, but by a minimal amount," Naroff added. "Just as good were the revisions to previous months, which now show significantly smaller employment losses."
Job losses have been easing over the last several months. November represented the fifth straight month with a lower number of payroll declines.
The average workweek ticked up to 33.2 hours, from last month's level of 33.0 hours. Average hourly earnings also ticked up, rising to $18.74 from $18.73.
Construction, manufacturing and retail continued to lose jobs in the month. However, this was largely offset by gains in the professional and business services and education and health services sectors. Government jobs also ticked up slightly.
Construction lost 27,000 jobs, while manufacturing shed 41,000 jobs. Retail trade experienced a 15,000 slide in payrolls.
Professional and business services saw employment rise by 86,000, while payrolls for the education and health services sector were up by 40,000.
The government segment saw a 7,000 increase in jobs.
Forex: Taiwan Forex Reserves Increase
Taiwan's foreign exchange reserves stood at US$347.19 billion at the end of November, the Central Bank of the Republic of China said on Friday. This was an increase of US$5.97 billion from the figure recorded at the end of October.
FOREX-Dollar rallies as U.S. cuts fewer jobs than expected
* Dollar soars vs yen, euro on surprise jobs data
* U.S. job loses in Nov of 11,000 far fewer than expected
* Classic "Buy North America" day
* Talk of renewed yen carry trade emerging
* China says dollar still at heart of its FX reserves (Updates prices, adds quotes, detail on jobs data)
By Steven C. Johnson
NEW YORK, Dec 4 (Reuters) - The dollar soared against the yen on Friday and rose against the euro after data showed the United States shed a far fewer-than-expected 11,000 jobs last month, boosting hopes that recovery is picking up steam.
Markets had expected job losses of 130,000 in November, and the surprisingly strong report fed speculation that the Federal Reserve may soon have to consider raising interest rates from record lows near zero.
The dollar approached 90 yen for the first time in three weeks and was on track for its best day against the Japanese currency since August, while the euro fell below $1.50.
* U.S. job loses in Nov of 11,000 far fewer than expected
* Classic "Buy North America" day
* Talk of renewed yen carry trade emerging
* China says dollar still at heart of its FX reserves (Updates prices, adds quotes, detail on jobs data)
By Steven C. Johnson
NEW YORK, Dec 4 (Reuters) - The dollar soared against the yen on Friday and rose against the euro after data showed the United States shed a far fewer-than-expected 11,000 jobs last month, boosting hopes that recovery is picking up steam.
Markets had expected job losses of 130,000 in November, and the surprisingly strong report fed speculation that the Federal Reserve may soon have to consider raising interest rates from record lows near zero.
The dollar approached 90 yen for the first time in three weeks and was on track for its best day against the Japanese currency since August, while the euro fell below $1.50.
WORLD FOREX: Dollar Extends Gains Across Board; Up 2.8% Vs Yen
TORONTO (Dow Jones)--The dollar extended its gains across the board Friday afternoon as rival currencies capitulated to the greenback's show of strength on expectations U.S. interest rates could rise earlier than previously thought.
The dollar's renewed rally took it to its biggest single-session advance on the yen so far this year, up 2.8% on the day. It hit a one-month peak versus the yen and its highest level in two weeks against the euro.
The Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, also hit a one-month high, up 1.7% since late Thursday.
The dollar's renewed rally took it to its biggest single-session advance on the yen so far this year, up 2.8% on the day. It hit a one-month peak versus the yen and its highest level in two weeks against the euro.
The Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, also hit a one-month high, up 1.7% since late Thursday.
Daily Forex Report - USD surges, US unemployment report beats expectations
* USD: Higher, US unemployment report exceeds expectations, Fed rate hike speculation
* JPY: Lower, pressured by improving risk sentiment, Japan plans new stimulus measures
* EUR: Lower, strong US payrolls report offsets BBK upgrade of its German 2010 growth forecast
* GBP: Mixed, UK auto registrations rise and the UK government pledges to increase public savings
* CAD and AUD: AUD lower & CAD higher, Canada's unemployment rate drops and jobs creation rises
Overview
The USD traded higher after the release of much better than expected US employment report for November making significant gains versus the JPY and EUR. The report fueled early equity market gains and a spike in risk appetite. US November unemployment dropped to 10% from 10.2% and nonfarm payroll falls by 11k. The average workweek rose slightly to 32.2 hours, and average hourly earnings were up 0.1%. The November unemployment report marks the strongest reading since December 2007. The unemployment rate was expected to have been unchanged at 10.2% and nonfarm payrolls were expected to have declined by 130k. Today's US unemployment report may encourage speculation that the Fed could raise rates sooner than had been originally thought. If Fed rate hike speculation gains momentum it may reduce the attraction of the USD as the preferred funding currency. Tuesday the BOJ elected to expand its funding operations and ease monetary policy. This action by the BOJ helped to push Japanese yields lower and encouraged fresh funding activity in the JPY. Whether the USD can build upon today's gains will depend on the Fed's reaction to today's US and employment report. In theory, unemployment is a lagging indicator and one of the last sectors of the economy to post recovery as recession ends. A more rapid improvement in the US labor market outlook could make it harder for the Fed to justify maintaining low yields for an "extended period." The USD will likely benefit when the Fed signals that it is ready to begin removing stimulus. Today's US unemployment report may not be enough just yet to change the trajectory of Fed monetary policy outlook. Two key issues that the Fed will consider include inflation and how Fed policy may be impacting asset prices. If US inflation remains in check, the Fed can justify maintaining low yields for an extended period of time. The wildcard is the outlook for asset prices and whether a continuation of the Fed's ultra-accommodating monetary policy will create the risk of asset bubbles in commodity and equity markets. In his testimony before Congress Thursday Fed Chairman Bernanke said he did not see any major abnormalities in market valuations. Until Bernanke's opinion about the risk of Fed policy creating an asset bubbles changes the USD recovery will likely be short-lived.
There was some interesting price action prior to today's release of US November unemployment with GBP and CAD posting gains. GBP was supported by a report that the UK government will announce a plan to increase the UK savings rate and to try and reduce the budget deficit. CAD traded higher in reaction to report of better than expected Canadian unemployment with headline unemployment down 0.1% and jobs growth reported at 79k. There was limited reaction to a report that the BBK upgraded its German GDP forecast for 2010 and a statement from the Fed's Bullard said that high unemployment may not stop the threat from tightening. The only other news of interest in overseas trade was a statement from Chinese officials that the USD is still at the heart of its foreign reserves and statement from the Japanese government they are working on a new stimulus package. The Chinese news may reduce fears of Chinese USD reserve diversification. Japan's plans to increase its budget outlays will encourage greater focus on the size of Japanese bond issuance. Japan's Finance Minister Fujii tried to reassure investors that the Japanese government will take actions to cap the issuance of new bonds. Focus turns to next Thursday BOE policy meeting.
Today's US data:
The US unemployment rate for November declined by 0.2% to 10% and the US economy lost just 11k in jobs during November. October nonfarm payroll losses were revised from -190k to -111k. Construction and manufacturing payrolls continued to decline with job gains in government, education and health services. October factory orders rose by 0.6%, a flat reading was expected.
Upcoming US data:
Next weeks US economic calendar includes the December 7th release October consumer credit expected at -9.5bln compared to -14.8bln last month. On December 9th wholesale sales and inventories will be released expected at 0.3% and -0.5% respectfully. On December 10th, initial jobless claims for the week ending 12/05 are expected at -465k compared to -457k last week. Also on December 10th, October trade balance will be released expected -36.10bln compared to -36.47bln last month along with November treasury budget expected at -134.75bln compared to-125.20bln last month. On December 11th, November retail sales will be released expected at 0.4% compared to 1.4% last month and December University of Michigan sentiment expected 68.2 compared to 67.4 last month. October business inventories and November import prices will also be released on December 11th. Business inventories are expected to fall by 0.2% compared to -0.4% last month. Import prices are expected to rise by 1% compared to 0.7% last month.
JPY
JPY traded sharply lower after the release of much better than expected US November employment report. The surprise improvement in the US labor market helped to fuel gains in equity markets and contributed to improving risk appetite. The JPY was also pressured by the impact of Tuesday's decision by the BOJ to expand its funding operations and ease monetary policy. The BOJ decision to ease monetary policy has encouraged fresh use of JPY as a funding currency. Prior to the BOJ's monetary policy ease Tuesday, US yields had fallen below Japanese yields making it cheaper to fund in the USD than the JPY. Today's better than expected US jobs report coupled with the BOJ monetary policy ease shifts yields slightly back in favor of the USD. Investors will be closely monitoring the Japanese government's plans to announce a new stimulus package. The concern has been that the governments plan to increase spending to boost domestic growth will require a significant issuance of bonds to fund the spending. A large issuance of new bonds could send long-term yields higher in Japan. Japan's Finance Minister Fujii tried to reassure investors and said that the Japanese government would JGB bond issuance.
Next week's Japanese economic calendar includes the December 8th release of October current account expected at ¥1.51trln compared to last month ¥1.57trln. Preliminary October leading indicators will also be released on December 8th expected this at 2.4% compared to 3.8% last month. On December 9th, second preliminary Q3 will be released expected at 1.2% compared to 0.7% in the original release. On December 10th November CGPI will be released expected that -0.3% compared to -0.7% last month. Also on December 10th November export and import prices and October machinery orders will be released. Export prices are expected to fall by 1.9% and imports by 1.3%. Machinery orders are expected to fall by 5% compared to a 10.5% rise last month.
Key technical levels to watch in USD/JPY include support at 88.00 the December 4th low with resistance at 90.40 the November 13th high.
091204_dailyfx_1
EUR
EUR traded sharply lower pressured by report a surprise improvement in the US labor market. Most of the selling in the EUR was attributed to stops triggered below 1.5000. EUR traded lower despite report that the BBK has raised its German 2010 GDP growth forecast to 1.6% from an original estimate of flat. In addition, the EUR has failed to gain much support from yesterday's announcement by the ECB of its plan to begin an exit strategy from non-conventional policy measures. The ECB plans to let its 12 month auction funding operations expire at the end of December and will index future refinance operations. The beginning of the exit strategy and the indexing of the refinancing operation in theory paves the way for higher interest rates next year in the EU. Today's US unemployment report offsets the outlook for higher ECB yields as the data may allow the Fed to move the timetable for US rate hikes forward. It does not seem to be prudent to get too carried away with today's US jobs report as a number of the jobs are being created by the government and there are still over 15mln unemployed in the US.
Next week's EU economic calendar includes the December 7th release of December Sentix index expected at -5 compared to -7 last month. On December 9th in November German final CPI will release expected unchanged at 0.1%.
The technical outlook for the EUR is mixed as the EUR trades below 1.5000. Expect EUR support at 1.4800 November 20th low with resistance at 1.5091 the December 4th high.
091204_dailyfx_2
GBP
GBP traded mixed to higher supported by gains in cross trade to the JPY and EUR. GBP gains are attributed to report that the UK government will announce a plan to help increase the rate of public savings to help reduce the UK budget deficit, a rise in UK auto registrations and improving risk appetite as equity markets rally after the release of better than expected US employment data. GBP was also supported by speculation that the BOE will hold monetary policy and the level of asset purchases unchanged at next week's BOE policy meeting Thursday. The BOE policy meeting next week is the key event risk for GBP trade. The BOE is expected to hold monetary policy unchanged and the level of its asset purchases unchanged at £200bln. If the BOE elects to maintain the current level of asset purchases it would be a modest positive for the GBP.
Next week's UK economic calendar includes December 8th release of October industrial production expected at 0.9% compared to 1.6% last month. November BRC retail sales will also be released on December 8th expected at 2% compared to 3.8% last month. On December 9th November consumer confidence will be released expected at 73 compared to 72 last month. Also on December 9th October trade balance will be released expected at -7.349bln compared to -7.194bln last month. On December 11th November PPI will be released expected at 0.5% compared to 0.3% last month.
The technical outlook for GBP is mixed as GBP struggles to hold above 1.6600. Expect near-term support at 1.6395 the December 1st low with resistance at 1.6747 the November 25th high.
091204_dailyfx_3
CAD
CAD traded higher supported by report of better than expected employment data in Canada and the US. Canada reported an unexpected decline in its unemployment rate for November of 0.1% to 8.5% with employment gains of 79k. The Canadian unemployment rate was expected to rise to 8.7% with just 15k new jobs created. The improvement in the Canadian jobs data coupled with much better than expected US November unemployment report fuels demand for equities and generates speculation of a quicker economic recovery in North America. CAD gains were somewhat limited by weaker gold prices. Gold was hit hard by today's spike in the USD. The decline in gold was partly offset by a rally in the price of crude. Prior to today's employment reports in US and Canada most analysts had forecast that the Fed would remain on hold through 2010. Today's employment data may start to push US long-term yields higher and could spark speculation of an earlier than expected Fed rate hike. At the last BOC policy meeting the BOC said that it will maintain low yields through June of 2010 provided inflation remains in check. Canada's November Ivey came in slightly weaker than expected at 55.9, the consensus for the report was 60.
Next week's Canadian economic calendar includes the December 8th release of November housing starts. On December 11th October new house price index will be released.
The technical outlook for CAD has improved as USD/CAD trades below 1.0600. Look for near-term support at 1.0380 the October 21st low with resistance at 1.0780 the November 9th high.
091204_dailyfx_4
AUD
AUD traded lower despite improving risk appetite and better than expected employment data from the US and Canada. AUD was pressured by speculation that today's US jobs data may encourage the Fed to move the timetable for its withdrawal of stimulus forward. The Feds Bullard said that high unemployment may not preclude the Fed from tightening. Not only was today's US unemployment report better than expected but there were significant revisions to the prior month's nonfarm payrolls losses. The November unemployment report coupled with the revisions to the prior month's data will make it harder for the Fed to justify maintaining interest rates near zero for an extended period of time. If the US economy is recovering faster than has been expected the Fed may be confronted with the issue of whether ultra accommodative monetary is still warranted. A shift in focus to Fed policy outlook may reduce some of the support for the AUD from tightening of monetary policy by the RBA. Tuesday, the RBA elected to hike rates 25 bps to 3.75%. The RBA said that Australia's 2010 growth should be close to trend and inflation close to target. Wednesday, RBA watcher McCrann says that he expects Australian interest rates continue to rise in 2010. Today's report of Australia's retail and sales supports the outlook for higher Australian interest rates. Expect AUD to remain well supported on breaks.
Next week's Australian economic calendar includes the December 8th release of Q3 current account expected at -18.1 billion compared to -13.3 million last month. On December 9th October housing finance will be released expected at 2.5% compared to 5.1% last month. October investor lending and trade balance will also be released on December 9th. Investor lending is expected at 0.2% compared to -0.1% last month. The trade balance is expected at -3.57bln compared to a 0.23bln surplus last month. On December 10th November unemployment will be released expected at 5.7% compared to 5.8% last month with the participation rate expected at unchanged at 65.2% and jobs created at 15k.
The technical outlook for the AUD is positive as the AUD holds above 9200. Expect AUD support at 9105 the December 1st low with resistance at 9325 the November 26th high and 9400.
* JPY: Lower, pressured by improving risk sentiment, Japan plans new stimulus measures
* EUR: Lower, strong US payrolls report offsets BBK upgrade of its German 2010 growth forecast
* GBP: Mixed, UK auto registrations rise and the UK government pledges to increase public savings
* CAD and AUD: AUD lower & CAD higher, Canada's unemployment rate drops and jobs creation rises
Overview
The USD traded higher after the release of much better than expected US employment report for November making significant gains versus the JPY and EUR. The report fueled early equity market gains and a spike in risk appetite. US November unemployment dropped to 10% from 10.2% and nonfarm payroll falls by 11k. The average workweek rose slightly to 32.2 hours, and average hourly earnings were up 0.1%. The November unemployment report marks the strongest reading since December 2007. The unemployment rate was expected to have been unchanged at 10.2% and nonfarm payrolls were expected to have declined by 130k. Today's US unemployment report may encourage speculation that the Fed could raise rates sooner than had been originally thought. If Fed rate hike speculation gains momentum it may reduce the attraction of the USD as the preferred funding currency. Tuesday the BOJ elected to expand its funding operations and ease monetary policy. This action by the BOJ helped to push Japanese yields lower and encouraged fresh funding activity in the JPY. Whether the USD can build upon today's gains will depend on the Fed's reaction to today's US and employment report. In theory, unemployment is a lagging indicator and one of the last sectors of the economy to post recovery as recession ends. A more rapid improvement in the US labor market outlook could make it harder for the Fed to justify maintaining low yields for an "extended period." The USD will likely benefit when the Fed signals that it is ready to begin removing stimulus. Today's US unemployment report may not be enough just yet to change the trajectory of Fed monetary policy outlook. Two key issues that the Fed will consider include inflation and how Fed policy may be impacting asset prices. If US inflation remains in check, the Fed can justify maintaining low yields for an extended period of time. The wildcard is the outlook for asset prices and whether a continuation of the Fed's ultra-accommodating monetary policy will create the risk of asset bubbles in commodity and equity markets. In his testimony before Congress Thursday Fed Chairman Bernanke said he did not see any major abnormalities in market valuations. Until Bernanke's opinion about the risk of Fed policy creating an asset bubbles changes the USD recovery will likely be short-lived.
There was some interesting price action prior to today's release of US November unemployment with GBP and CAD posting gains. GBP was supported by a report that the UK government will announce a plan to increase the UK savings rate and to try and reduce the budget deficit. CAD traded higher in reaction to report of better than expected Canadian unemployment with headline unemployment down 0.1% and jobs growth reported at 79k. There was limited reaction to a report that the BBK upgraded its German GDP forecast for 2010 and a statement from the Fed's Bullard said that high unemployment may not stop the threat from tightening. The only other news of interest in overseas trade was a statement from Chinese officials that the USD is still at the heart of its foreign reserves and statement from the Japanese government they are working on a new stimulus package. The Chinese news may reduce fears of Chinese USD reserve diversification. Japan's plans to increase its budget outlays will encourage greater focus on the size of Japanese bond issuance. Japan's Finance Minister Fujii tried to reassure investors that the Japanese government will take actions to cap the issuance of new bonds. Focus turns to next Thursday BOE policy meeting.
Today's US data:
The US unemployment rate for November declined by 0.2% to 10% and the US economy lost just 11k in jobs during November. October nonfarm payroll losses were revised from -190k to -111k. Construction and manufacturing payrolls continued to decline with job gains in government, education and health services. October factory orders rose by 0.6%, a flat reading was expected.
Upcoming US data:
Next weeks US economic calendar includes the December 7th release October consumer credit expected at -9.5bln compared to -14.8bln last month. On December 9th wholesale sales and inventories will be released expected at 0.3% and -0.5% respectfully. On December 10th, initial jobless claims for the week ending 12/05 are expected at -465k compared to -457k last week. Also on December 10th, October trade balance will be released expected -36.10bln compared to -36.47bln last month along with November treasury budget expected at -134.75bln compared to-125.20bln last month. On December 11th, November retail sales will be released expected at 0.4% compared to 1.4% last month and December University of Michigan sentiment expected 68.2 compared to 67.4 last month. October business inventories and November import prices will also be released on December 11th. Business inventories are expected to fall by 0.2% compared to -0.4% last month. Import prices are expected to rise by 1% compared to 0.7% last month.
JPY
JPY traded sharply lower after the release of much better than expected US November employment report. The surprise improvement in the US labor market helped to fuel gains in equity markets and contributed to improving risk appetite. The JPY was also pressured by the impact of Tuesday's decision by the BOJ to expand its funding operations and ease monetary policy. The BOJ decision to ease monetary policy has encouraged fresh use of JPY as a funding currency. Prior to the BOJ's monetary policy ease Tuesday, US yields had fallen below Japanese yields making it cheaper to fund in the USD than the JPY. Today's better than expected US jobs report coupled with the BOJ monetary policy ease shifts yields slightly back in favor of the USD. Investors will be closely monitoring the Japanese government's plans to announce a new stimulus package. The concern has been that the governments plan to increase spending to boost domestic growth will require a significant issuance of bonds to fund the spending. A large issuance of new bonds could send long-term yields higher in Japan. Japan's Finance Minister Fujii tried to reassure investors and said that the Japanese government would JGB bond issuance.
Next week's Japanese economic calendar includes the December 8th release of October current account expected at ¥1.51trln compared to last month ¥1.57trln. Preliminary October leading indicators will also be released on December 8th expected this at 2.4% compared to 3.8% last month. On December 9th, second preliminary Q3 will be released expected at 1.2% compared to 0.7% in the original release. On December 10th November CGPI will be released expected that -0.3% compared to -0.7% last month. Also on December 10th November export and import prices and October machinery orders will be released. Export prices are expected to fall by 1.9% and imports by 1.3%. Machinery orders are expected to fall by 5% compared to a 10.5% rise last month.
Key technical levels to watch in USD/JPY include support at 88.00 the December 4th low with resistance at 90.40 the November 13th high.
091204_dailyfx_1
EUR
EUR traded sharply lower pressured by report a surprise improvement in the US labor market. Most of the selling in the EUR was attributed to stops triggered below 1.5000. EUR traded lower despite report that the BBK has raised its German 2010 GDP growth forecast to 1.6% from an original estimate of flat. In addition, the EUR has failed to gain much support from yesterday's announcement by the ECB of its plan to begin an exit strategy from non-conventional policy measures. The ECB plans to let its 12 month auction funding operations expire at the end of December and will index future refinance operations. The beginning of the exit strategy and the indexing of the refinancing operation in theory paves the way for higher interest rates next year in the EU. Today's US unemployment report offsets the outlook for higher ECB yields as the data may allow the Fed to move the timetable for US rate hikes forward. It does not seem to be prudent to get too carried away with today's US jobs report as a number of the jobs are being created by the government and there are still over 15mln unemployed in the US.
Next week's EU economic calendar includes the December 7th release of December Sentix index expected at -5 compared to -7 last month. On December 9th in November German final CPI will release expected unchanged at 0.1%.
The technical outlook for the EUR is mixed as the EUR trades below 1.5000. Expect EUR support at 1.4800 November 20th low with resistance at 1.5091 the December 4th high.
091204_dailyfx_2
GBP
GBP traded mixed to higher supported by gains in cross trade to the JPY and EUR. GBP gains are attributed to report that the UK government will announce a plan to help increase the rate of public savings to help reduce the UK budget deficit, a rise in UK auto registrations and improving risk appetite as equity markets rally after the release of better than expected US employment data. GBP was also supported by speculation that the BOE will hold monetary policy and the level of asset purchases unchanged at next week's BOE policy meeting Thursday. The BOE policy meeting next week is the key event risk for GBP trade. The BOE is expected to hold monetary policy unchanged and the level of its asset purchases unchanged at £200bln. If the BOE elects to maintain the current level of asset purchases it would be a modest positive for the GBP.
Next week's UK economic calendar includes December 8th release of October industrial production expected at 0.9% compared to 1.6% last month. November BRC retail sales will also be released on December 8th expected at 2% compared to 3.8% last month. On December 9th November consumer confidence will be released expected at 73 compared to 72 last month. Also on December 9th October trade balance will be released expected at -7.349bln compared to -7.194bln last month. On December 11th November PPI will be released expected at 0.5% compared to 0.3% last month.
The technical outlook for GBP is mixed as GBP struggles to hold above 1.6600. Expect near-term support at 1.6395 the December 1st low with resistance at 1.6747 the November 25th high.
091204_dailyfx_3
CAD
CAD traded higher supported by report of better than expected employment data in Canada and the US. Canada reported an unexpected decline in its unemployment rate for November of 0.1% to 8.5% with employment gains of 79k. The Canadian unemployment rate was expected to rise to 8.7% with just 15k new jobs created. The improvement in the Canadian jobs data coupled with much better than expected US November unemployment report fuels demand for equities and generates speculation of a quicker economic recovery in North America. CAD gains were somewhat limited by weaker gold prices. Gold was hit hard by today's spike in the USD. The decline in gold was partly offset by a rally in the price of crude. Prior to today's employment reports in US and Canada most analysts had forecast that the Fed would remain on hold through 2010. Today's employment data may start to push US long-term yields higher and could spark speculation of an earlier than expected Fed rate hike. At the last BOC policy meeting the BOC said that it will maintain low yields through June of 2010 provided inflation remains in check. Canada's November Ivey came in slightly weaker than expected at 55.9, the consensus for the report was 60.
Next week's Canadian economic calendar includes the December 8th release of November housing starts. On December 11th October new house price index will be released.
The technical outlook for CAD has improved as USD/CAD trades below 1.0600. Look for near-term support at 1.0380 the October 21st low with resistance at 1.0780 the November 9th high.
091204_dailyfx_4
AUD
AUD traded lower despite improving risk appetite and better than expected employment data from the US and Canada. AUD was pressured by speculation that today's US jobs data may encourage the Fed to move the timetable for its withdrawal of stimulus forward. The Feds Bullard said that high unemployment may not preclude the Fed from tightening. Not only was today's US unemployment report better than expected but there were significant revisions to the prior month's nonfarm payrolls losses. The November unemployment report coupled with the revisions to the prior month's data will make it harder for the Fed to justify maintaining interest rates near zero for an extended period of time. If the US economy is recovering faster than has been expected the Fed may be confronted with the issue of whether ultra accommodative monetary is still warranted. A shift in focus to Fed policy outlook may reduce some of the support for the AUD from tightening of monetary policy by the RBA. Tuesday, the RBA elected to hike rates 25 bps to 3.75%. The RBA said that Australia's 2010 growth should be close to trend and inflation close to target. Wednesday, RBA watcher McCrann says that he expects Australian interest rates continue to rise in 2010. Today's report of Australia's retail and sales supports the outlook for higher Australian interest rates. Expect AUD to remain well supported on breaks.
Next week's Australian economic calendar includes the December 8th release of Q3 current account expected at -18.1 billion compared to -13.3 million last month. On December 9th October housing finance will be released expected at 2.5% compared to 5.1% last month. October investor lending and trade balance will also be released on December 9th. Investor lending is expected at 0.2% compared to -0.1% last month. The trade balance is expected at -3.57bln compared to a 0.23bln surplus last month. On December 10th November unemployment will be released expected at 5.7% compared to 5.8% last month with the participation rate expected at unchanged at 65.2% and jobs created at 15k.
The technical outlook for the AUD is positive as the AUD holds above 9200. Expect AUD support at 9105 the December 1st low with resistance at 9325 the November 26th high and 9400.
Tuesday, December 1, 2009
Forex: RBA Raises Key Rate To 3.75% Citing Improved Conditions
Strengthening the view that the Australian economy is improving steadily, the Reserve Bank of Australia raised its key interest rate for a third straight session, after keeping it unchanged at record low levels for five consecutive months. In October, Australia became the first G-20 nation to hike its interest rate since the onset of the global financial crisis in late 2008.
On Tuesday, the central bank raised the official cash rate by a further 25 basis points to 3.75%, in line with market expectations. "These material adjustments to the stance of monetary policy will, in the Board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead," the central bank said in a statement.
Australia's 3.75% key rate compares to near-zero interest rates in the U.S. and Japan, a 0.5% benchmark rate in the U.K. and a 1% rate in the Eurozone. With no monetary policy meeting scheduled in January, the RBA chose to tighten rates rather than having to wait until February to make its move.
"In deciding today to further wind back the policy accommodation", the J.P.Morgan chief economist Stephen Walters said, "RBA officials are taking the path of least hazard". "They are hiking while they have time on their side and the exit from emergency settings can be orderly."
The central bank pointed out that the economic downturn was relatively mild in Australia, and that measures of confidence and business conditions suggested that the economy was in a gradual recovery. "With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," RBA Governor Glenn Stevens said in a statement.
Stevens noted that although the effects of fiscal stimulus on consumer demand are fading, public infrastructure spending is starting to provide more impetus to demand. There were also some signs of improvement in labor market conditions, Stevens said, adding that the unemployment rate is now likely to peak "at a considerably lower level than expected".
Further, the central bank expects underlying inflation to moderate in the near-term, though it said core inflation "will probably not fall as far as thought likely six months ago". The bank forecasts headline and underlying inflation to be "consistent" with the 2%-3% target in 2010.
Westpac chief economist Bill Evans stated that despite the hike, interest rates were "at least 75 basis points below neutral". He noted that with no rate setting meeting in January, the central bank has ample time to assess the impact of its monetary policy. "However, the key point remains that rates are still firmly in the expansionary zone, and not consistent with a central bank which believes that growth is returning to trend while inflation remains above the target band," Evans said.
Economists are looking for another quarter-point hike when the RBA Board meets on February 2. "With Australia's economy already at risk of bumping up against the same capacity constraints that blighted the last economic upswing, the RBA probably will be forced to push the policy stance into 'restrictive' territory in 2011," said J.P.Morgan's Walters, who expects the key rate to rise steadily throughout 2010.
Meanwhile, the Housing Industry Association of Australia expressed dismay at the central bank's decision, claiming that the latest rate hike will harm the chances of a strong recovery in the home building sector. "While a residential construction recovery is underway, there is compelling evidence that the magnitude of the upswing will be insufficient to make a major dent on Australia's chronic housing shortage," said Harley Dale, Chief Economist at HIA. "Today's rate increase is not helpful."
Dale queried the wisdom of the central bank's tightening policy, pointing out that inflationary pressures in the country were well contained at present. "There is no need to tap on the interest rate brakes at every meeting, especially at a time when Australia's residential construction sector is struggling to generate the momentum required to sustainably boost the nation's housing supply," he said.
The Australian dollar pared its early gains against its major counterparts following the RBA rate announcement.
On Tuesday, the central bank raised the official cash rate by a further 25 basis points to 3.75%, in line with market expectations. "These material adjustments to the stance of monetary policy will, in the Board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead," the central bank said in a statement.
Australia's 3.75% key rate compares to near-zero interest rates in the U.S. and Japan, a 0.5% benchmark rate in the U.K. and a 1% rate in the Eurozone. With no monetary policy meeting scheduled in January, the RBA chose to tighten rates rather than having to wait until February to make its move.
"In deciding today to further wind back the policy accommodation", the J.P.Morgan chief economist Stephen Walters said, "RBA officials are taking the path of least hazard". "They are hiking while they have time on their side and the exit from emergency settings can be orderly."
The central bank pointed out that the economic downturn was relatively mild in Australia, and that measures of confidence and business conditions suggested that the economy was in a gradual recovery. "With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," RBA Governor Glenn Stevens said in a statement.
Stevens noted that although the effects of fiscal stimulus on consumer demand are fading, public infrastructure spending is starting to provide more impetus to demand. There were also some signs of improvement in labor market conditions, Stevens said, adding that the unemployment rate is now likely to peak "at a considerably lower level than expected".
Further, the central bank expects underlying inflation to moderate in the near-term, though it said core inflation "will probably not fall as far as thought likely six months ago". The bank forecasts headline and underlying inflation to be "consistent" with the 2%-3% target in 2010.
Westpac chief economist Bill Evans stated that despite the hike, interest rates were "at least 75 basis points below neutral". He noted that with no rate setting meeting in January, the central bank has ample time to assess the impact of its monetary policy. "However, the key point remains that rates are still firmly in the expansionary zone, and not consistent with a central bank which believes that growth is returning to trend while inflation remains above the target band," Evans said.
Economists are looking for another quarter-point hike when the RBA Board meets on February 2. "With Australia's economy already at risk of bumping up against the same capacity constraints that blighted the last economic upswing, the RBA probably will be forced to push the policy stance into 'restrictive' territory in 2011," said J.P.Morgan's Walters, who expects the key rate to rise steadily throughout 2010.
Meanwhile, the Housing Industry Association of Australia expressed dismay at the central bank's decision, claiming that the latest rate hike will harm the chances of a strong recovery in the home building sector. "While a residential construction recovery is underway, there is compelling evidence that the magnitude of the upswing will be insufficient to make a major dent on Australia's chronic housing shortage," said Harley Dale, Chief Economist at HIA. "Today's rate increase is not helpful."
Dale queried the wisdom of the central bank's tightening policy, pointing out that inflationary pressures in the country were well contained at present. "There is no need to tap on the interest rate brakes at every meeting, especially at a time when Australia's residential construction sector is struggling to generate the momentum required to sustainably boost the nation's housing supply," he said.
The Australian dollar pared its early gains against its major counterparts following the RBA rate announcement.
Forex: RBA Raises Key Rate To 3.75% Citing Improved Conditions
Strengthening the view that the Australian economy is improving steadily, the Reserve Bank of Australia raised its key interest rate for a third straight session, after keeping it unchanged at record low levels for five consecutive months. In October, Australia became the first G-20 nation to hike its interest rate since the onset of the global financial crisis in late 2008.
On Tuesday, the central bank raised the official cash rate by a further 25 basis points to 3.75%, in line with market expectations. "These material adjustments to the stance of monetary policy will, in the Board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead," the central bank said in a statement.
Australia's 3.75% key rate compares to near-zero interest rates in the U.S. and Japan, a 0.5% benchmark rate in the U.K. and a 1% rate in the Eurozone. With no monetary policy meeting scheduled in January, the RBA chose to tighten rates rather than having to wait until February to make its move.
"In deciding today to further wind back the policy accommodation", the J.P.Morgan chief economist Stephen Walters said, "RBA officials are taking the path of least hazard". "They are hiking while they have time on their side and the exit from emergency settings can be orderly."
The central bank pointed out that the economic downturn was relatively mild in Australia, and that measures of confidence and business conditions suggested that the economy was in a gradual recovery. "With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," RBA Governor Glenn Stevens said in a statement.
Stevens noted that although the effects of fiscal stimulus on consumer demand are fading, public infrastructure spending is starting to provide more impetus to demand. There were also some signs of improvement in labor market conditions, Stevens said, adding that the unemployment rate is now likely to peak "at a considerably lower level than expected".
Further, the central bank expects underlying inflation to moderate in the near-term, though it said core inflation "will probably not fall as far as thought likely six months ago". The bank forecasts headline and underlying inflation to be "consistent" with the 2%-3% target in 2010.
Westpac chief economist Bill Evans stated that despite the hike, interest rates were "at least 75 basis points below neutral". He noted that with no rate setting meeting in January, the central bank has ample time to assess the impact of its monetary policy. "However, the key point remains that rates are still firmly in the expansionary zone, and not consistent with a central bank which believes that growth is returning to trend while inflation remains above the target band," Evans said.
Economists are looking for another quarter-point hike when the RBA Board meets on February 2. "With Australia's economy already at risk of bumping up against the same capacity constraints that blighted the last economic upswing, the RBA probably will be forced to push the policy stance into 'restrictive' territory in 2011," said J.P.Morgan's Walters, who expects the key rate to rise steadily throughout 2010.
Meanwhile, the Housing Industry Association of Australia expressed dismay at the central bank's decision, claiming that the latest rate hike will harm the chances of a strong recovery in the home building sector. "While a residential construction recovery is underway, there is compelling evidence that the magnitude of the upswing will be insufficient to make a major dent on Australia's chronic housing shortage," said Harley Dale, Chief Economist at HIA. "Today's rate increase is not helpful."
Dale queried the wisdom of the central bank's tightening policy, pointing out that inflationary pressures in the country were well contained at present. "There is no need to tap on the interest rate brakes at every meeting, especially at a time when Australia's residential construction sector is struggling to generate the momentum required to sustainably boost the nation's housing supply," he said.
The Australian dollar pared its early gains against its major counterparts following the RBA rate announcement.
On Tuesday, the central bank raised the official cash rate by a further 25 basis points to 3.75%, in line with market expectations. "These material adjustments to the stance of monetary policy will, in the Board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead," the central bank said in a statement.
Australia's 3.75% key rate compares to near-zero interest rates in the U.S. and Japan, a 0.5% benchmark rate in the U.K. and a 1% rate in the Eurozone. With no monetary policy meeting scheduled in January, the RBA chose to tighten rates rather than having to wait until February to make its move.
"In deciding today to further wind back the policy accommodation", the J.P.Morgan chief economist Stephen Walters said, "RBA officials are taking the path of least hazard". "They are hiking while they have time on their side and the exit from emergency settings can be orderly."
The central bank pointed out that the economic downturn was relatively mild in Australia, and that measures of confidence and business conditions suggested that the economy was in a gradual recovery. "With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," RBA Governor Glenn Stevens said in a statement.
Stevens noted that although the effects of fiscal stimulus on consumer demand are fading, public infrastructure spending is starting to provide more impetus to demand. There were also some signs of improvement in labor market conditions, Stevens said, adding that the unemployment rate is now likely to peak "at a considerably lower level than expected".
Further, the central bank expects underlying inflation to moderate in the near-term, though it said core inflation "will probably not fall as far as thought likely six months ago". The bank forecasts headline and underlying inflation to be "consistent" with the 2%-3% target in 2010.
Westpac chief economist Bill Evans stated that despite the hike, interest rates were "at least 75 basis points below neutral". He noted that with no rate setting meeting in January, the central bank has ample time to assess the impact of its monetary policy. "However, the key point remains that rates are still firmly in the expansionary zone, and not consistent with a central bank which believes that growth is returning to trend while inflation remains above the target band," Evans said.
Economists are looking for another quarter-point hike when the RBA Board meets on February 2. "With Australia's economy already at risk of bumping up against the same capacity constraints that blighted the last economic upswing, the RBA probably will be forced to push the policy stance into 'restrictive' territory in 2011," said J.P.Morgan's Walters, who expects the key rate to rise steadily throughout 2010.
Meanwhile, the Housing Industry Association of Australia expressed dismay at the central bank's decision, claiming that the latest rate hike will harm the chances of a strong recovery in the home building sector. "While a residential construction recovery is underway, there is compelling evidence that the magnitude of the upswing will be insufficient to make a major dent on Australia's chronic housing shortage," said Harley Dale, Chief Economist at HIA. "Today's rate increase is not helpful."
Dale queried the wisdom of the central bank's tightening policy, pointing out that inflationary pressures in the country were well contained at present. "There is no need to tap on the interest rate brakes at every meeting, especially at a time when Australia's residential construction sector is struggling to generate the momentum required to sustainably boost the nation's housing supply," he said.
The Australian dollar pared its early gains against its major counterparts following the RBA rate announcement.
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