Risk appetite has the ability, but apparently little desire, to self-improve at the end of the week. The huge sucking sound of Chinese imports in to its nation’s ports helped relax fears over an impending slowdown in the pace of global recovery. A stimulus package from Tokyo also helped soothe investors’ nerves while the safe haven appeal of Swiss franc and Japanese yen came off the boil. But markets are showing some restraint in going hell-for-leather again today, as if something unsavory is bubbling away in the background.
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Canadian dollar – The Canadian dollar has recoiled from its intraday peak against the dollar at 97.00 U.S. cents. The rebound marks a three-and-a-half cent gain so far this month as broader market nervousness has receded. The catalyst for today’s rally is a labor market update report reminiscent of that released earlier in the week in Australia. Although more people joined the labor market through the end of August accounting for a tick upwards in the rate of unemployment to 8.1%, Canadian employers added a greater than expected 35,800 positions in the month. Educational roles accounted for a good slice of the data. But the striking thing about this number, just as with Australian data, is the surge in full-time positions, which rose by 79,900 while part-time employment shrank by 44,100 positions. The central bank’s increase in interest rates this week may well not be the last should such a trend continue. The dollar came off its peak to trade at 96.83 cents an hour after the release as dealers digested the report.
Aussie dollar – The Aussie shook off yesterday’s slump rising from 92.05 U.S. cents to 92.67 cents following the positive reading on China’s trade surplus. An August surplus was the third consecutive reading above $20 billion in as many months and comes as the pace of imports rose by 35% year-on-year indicating a pick-up in activity. The Australian dollar also made gains against the yen to ¥77.90 as the yen suffered on all crosses overnight.
Japanese yen – Most economists have had to admit recently that the string of global data is not as bad as they’d feared, shifting focus away from talk of a double-dip recession. It has been a hard task to divert portfolio flows into the yen during this time, however, leaving the Japanese in something of a pickle. Currency intervention has been mulled but carries an unsure outcome. The government has not been shy in saying this and has dragged its heels over whether it should go it alone. Next week sees a showdown as politicians vote to decide whether Ichiro Ozawa should replace DPJ leader and Prime Minister Naoto Kan. In a Tokyo debate between the two today, the thorny question of intervention was raised. Kan relayed that Japan would likely have to go it alone because both Europe and the U.S. would be content to see their currencies weaken to promote exports. He appeared to apologize in advance for the impact that yen selling would have on outside interests. The Prime Minister also unveiled an $11 billion stimulus initiative aimed at boosting consumption and employment and held out the prospects for a further package before year-end. The yen weakened per dollar to ¥84.32.
Euro – The euro remains higher against the dollar but is making a swift retreat from an earlier high at $1.2750. ECB Chief Trichet told the Financial Times that it’s an awkward task shaking borrowers off its emergency lending program, which was recently extended into 2011. Colleague Ordonez poured some cold water on the risk rally by offering the view that there could be further disruptions to financial markets and said that banks should continue to think about strengthening their financial infrastructure. Shares in almighty Deutsche Bank slipped 5% in European trading as stories swirled that the bank would issue €9 billion in share capital. The euro is now struggling with the $1.2700 watershed.
British pound – Inflationary pressures cooled off in August according to a producer price report released earlier, but the boost to the pound has long since evaporated. The cost of goods leaving the factory gate rose by a smaller than expected 4.7% on the year ago, while the cost of raw material inputs reversed course as the pound gained ground during the month. The pound has now lower at $1.5395 having reached $1.5467 in response to the earlier data.
U.S. Dollar – The dollar is once again flexing its muscles and its index is 0.2% firmer at 82.81. It’s breaking higher against fellow safety valves of the Swiss franc and Japanese yen as stock market sentiment edges ahead. Yet at the same time it’s tearing chunks out of the usual harbingers of prosperity of the Aussie and Canadian dollars. European units are left floundering. It’s hard to say that risk is at all off the agenda given the fact that pre-market equity index futures remain firm. Something somewhere is lurking. We just can’t see it yet.
Andrew Wilkinson is a senior market analyst at Interactive Brokers LLCNote: 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.