IB FX View
Trading in currencies got off to a rather quiet start with the continued emphasis on the apparent view that the worst of the economic storm is now behind us, which will increase the demand for riskier assets above the dollar. But there was a fresh stick thrust into the spokes today with a leading banking analyst stirring up enough interest in his view that the recession was a rolling one amongst asset classes and not likely to end anytime soon. His view that banks would face further losses has sent stocks down and the dollar rebounding. The loser is the Japanese yen, idly ambling between a rock and a hard place. Its economy is devastated, while the rebound notion continues to undermine traditional safe havens.
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The dollar continues to outflank the Japanese yen and has convincingly burst through last week’s highs and today buys ¥100.65 while one euro today buys $1.3451 and is a little weaker against the dollar this morning. Against the yen the euro surged to a six month peak above ¥137 earlier today.
There is precious little new to mull over during today’s session. As bleak as Friday’s U.S. employment report was in which the rate of unemployment surged to 8.5%, investors are of the opinion that further increases will occur as the economy levels out. As such they discount the data to its status as a lagging indicator and appear predisposed to reliance on the leading indicator of the stock market as a better indicator of where the economy is likely to head. Today’s banking sector downgrade at Calyon Securities directly challenges the view that the stock market as a barometer of health is a reliable one given the magnitude of the structural financial sector damage.
Both the commodity dollars are a little easier against the greenback today, but are still performing well. In other words they appear to be taking a breather from a rally as opposed to reversing course. More than half of the economists surveyed by Bloomberg News expect no reduction at the Reserve Bank of Australia’s Tuesday monetary policy meeting. The RBS held off lowering rates at its March meeting, wanting to give more time for the economy to digest earlier reductions in rates and for consumers to respond to tax giveaways. Now that sentiment appears to be in the camp of one of rebound, the RBA could be justified in holding still tomorrow, but that doesn’t mean they should not ease policy further. Certainly the case for a rebound helping the Aussie dollar could be made, but the Canadian dollar continues to trade warily as investors anticipate the onset of quantitative easing at some point during April from its government and central bank. The Aussie buys 71.18 U.S. cents today and the Canadian dollar buys 80.75 cents.
The British pound got a further shot in the arm to begin trading this week, as the domestic financial sector breathed a sigh of relief following the success of an enormous $19.2 billion rights issue to support its capital structure. Some 97% of shares offered were sold, which helped send its and other financial shares surging earlier today. The pound gained across the deck before buckling against the dollar reaching $1.4959 before easing to $1.4825. Against the euro the pound gained to 90.32.
Andrew Wilkinson
Senior Market Analyst ibanalyst@interactivebrokers.com
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
