Earlier this morning, the market was in a good mood as a Greek Plan to issue bonds in Dollars was widely accepted which may help them reach their goal to raise capital to fund debt. In addition, news out of Ireland that they will raise private capital to help their banks after “appalling lending” was also met with approval as it would keep the Irish banks out of government control and thus adding to Irish debt.
Canadian GDP came in better than expected, beating the estimate by .1% signaling that Canada may be the next country to raise rates.
On the negative side, Australian retail sales came in worse than expected, which could temper speculation that the RBA will hike rates again next week.
And then the ADP jobs report came in here in the US, showing that 23K private sector jobs were lost vs. an expectation of a GAIN of 40K. This could foreshadow Friday’s NFP report which is also expected to show job growth.
In the forex market:
Aussie (AUD): The Aussie is down this morning as retail sales unexpected fell 1.4% vs. an expected gain of .3%. In addition, building permits fell 3.3% vs. an expectation of a gain of 2.1%. This illustrates that domestic demand in Australia is diminishing as previous rate hikes may be taking hold. The RBA is meeting next week with its decision on rate hikes, and this could mean a pause.
Kiwi (NZD): The Kiwi is down in sympathy with the Aussie as signs that domestic demand in the region may be slowing. Nevertheless, commodities are higher which is providing some support for the Kiwi, as well as the news out of the Euro zone that debt challenges may be met.
Loonie (CAD): The Loonie is higher as Canadian GDP came in at .6% showing the best gain in nearly three years. In addition, oil is higher which also benefits the Loonie. It is widely expected that Canada may be the next to hike rates, and Friday’s NFP report will be significant for the Loonie as it will show how economic recovery in the US, Canada’s largest trading partner, is doing.
Euro (EUR): The Euro has positive momentum as news regarding the debt problems of its members (particularly Greece and Ireland) has been met with approval by the market. Also, to note is that French PPI came in as expected so inflation seems tame, but German unemployment figures showed a loss of 31K vs. an expected gain, showing signs that the Euro zone’s strongest economy may be weakening just a bit. Nevertheless the news is positive for the Euro this morning, as reflected by its gains. The Euro is above 1.35 vs. USD.
Pound (GBP): The Pound is also higher this morning in a continuation of yesterday’s move as a result of better than expected GDP and housing prices. The Pound has been beaten up as of late with debt fears surfacing; however confidence is rising that the elections will produce a government which is attentive to servicing UK debt.
Dollar (USD): The Dollar is mixed this morning, showing gains vs. Pacific region currencies, but losses against the rest. The ADP jobs report came out showing private sector losses vs. gains (see above) which while negative for the US economy, also mean that rates may be allowed to remain at extraordinarily low levels. The Dollar initially gained on the news in a flight to safety, but may be reversing that initial move.
Yen (JPY): The Yen is lower against all but the Aussie and Kiwi, as we may be seeing some unwinding of carry trade positions. With news out of the Euro zone, today “should be” a risk-taking day with the exception that the usual beneficiaries are not favored today due to economic concerns.
So today is the day were acceptance of Euro zone plans to combat debt have helped global economic stability, which should generally show risk-taking. I expect that the Aussie and Kiwi may shake off the news out of Australia and to possibly show gains by the end of the day.
While the ADP report was discouraging here in the US, the market is inclined to disregard this news in favor of better stories abroad. Now if this was the NFP figure, the story might be different. However, the market is getting used to the idea of a jobless recovery here in the US, as government spending has all but replaced output normally provided by employment.
If NFP does show the job growth that our government has “sold their soul” to try to get; then it could be “game on” for risk-taking. As inflation “seems” tame here in the US, we could see a slow but protracted decline of the Dollar as yield seekers send money elsewhere.
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