Japanese yen – A 4%-plus surge in the Nikkei leaves the Japanese benchmark roughly 6% lower than before the forces of nature tore into the northern shores around Sendai. The nation faces a significant rebuild and more importantly it has the hurdle to jump of raising sufficient capital to back major infrastructure projects. The burden of rising debt may yet have the impact of weakening the Japanese yen into the second half of the year as it becomes costlier to attract inwards capital flows. The threat of intervention remains enough at present even after just an initial bout to keep the yen anchored to ¥81.00 per dollar.
Aussie dollar – Rising commodity prices overnight may have petered away in later European trading, but the risk-on mentality continues to foster recovery in the Aussie, which today rose to a near two-week high at $1.0152. Expectations over easier monetary policy have also continued to thaw in Australia. New Zealand recently lowered its benchmark rate in response to its second earthquake, while the Bank of Japan poured copious amounts of liquidity into the money markets to ensure financial systems didn’t buckle. And let’s not forget that the Australians were devastated by flooding followed by a cyclone. The impact on trade is still uncertain in coming months and it was hardly unreasonable to argue that the RBA might be forced into a policy response in the face of crisis. But as the shock value of the Japanese crisis wears off there is a slow move away from the thought process that monetary easing is close at hand. Bond yields continued to back away from crisis levels once again, further supporting the Aussie.
Canadian dollar – There’s possibly a little more than meets the eye to a dip in Canadian retail sales in February. Finance Minister Jim Flaherty’s concerns that excessive household borrowing could prove fatal caused him to implement restrictions in January to prevent overheating. At the same time a 1% increase in sales tax was implemented. The result seems to have been pretty immediate with sales flunking expectations for a rebound from a 0.2% dip at the start of the year coming in at -0.3%. Analysts had forecast a 1% gain. Excluding autos and parts sales in February stood still stoking fears that recovery might be challenged by growing restrain among consumers. Auto and gasoline sales fell while furniture buyers disappeared. The Canadian dollar bought $1.0240 ahead of the number but quickly fell to $1.0200 as fears that the rebound might be ending played out. Not helping matters is a dip in the price of crude oil, which is down 72 cents to $101.61.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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.