Risk avoidance continues to dominate midweek after China indicated that even with growth softening at the edges it would maintain a tough stance on inflation. And as investors gear up for Friday’s key labor market data, U.S. employers added fewer new positions last month helping to keep the horizon free from any signs of monetary tightening, adding to recent downside pressure on the dollar. The size of a partner-bailout for Portugal was announced earlier along with terms and conditions although the single euro didn’t bat an eyelid ahead of Thursday’s central bank meeting.
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U.S. Dollar – For a couple of weeks now we’ve watched weekly initial claims data climb above the pivotal 400,000 mark, which is thought of as a watershed. Readings beneath it are associated with sufficiently strong monthly payroll growth that would reduce the rate of unemployment, while readings above just don’t budge the economy forward fast enough. The April ADP private payroll reading was earlier released and showed a dip in new payroll growth, which doesn’t augur well for official government data on Friday. The dollar index rebounded from its earlier swoon at the start of the week to its lowest since July 2008 but is back under pressure once again following today’s reading. The index shed 0.3% to stand at 72.86.
Euro – It was announced that Portugal received a three-year loan of €78 billion at an undisclosed rate of interest to help it through its sticky patch having officially requested assistance from its European partners in April. The Portuguese government fell having failed to win over opposition lawmakers with its plan for further austerity measures in the face of an expected slide of 1.4% in domestic growth through 2011. The package depends on the nation’s ability to slash its budget deficit as a proportion of GDP to 5.9% by the end of the year and back to 3% by the end of 2013. That’s a tough call for a nation struggling to grow with consumers strapped and unemployment running high. The single currency looked through the details of the package and continued to rally against the dollar rising to $1.4928 after the ADP data detracted from the greenback. Investors are more concerned with what ECB Governor Trichet will say on Thursday following the central bank’s discussion on monetary policy. There is little pent-up expectation of a rate increase at the meeting although investors fully expect a June-time increase of a further 25 basis points. Bullish buyers looked right-through a March retail sales report showing an unexpected monthly slide of 1% in activity.
British pound – Earlier losses for the pound have been unwound as the dollar takes another beating. The pound deserved another session of losses in light of a series of unhealthy data points but has trumped the unwell dollar by rebounding to $1.6553 despite an earlier tumble to $1.6452. A Nationwide house price report showed the first monthly loss in house values in three months leaving prices lower compared to a year ago by 1.3%. Meanwhile an April PMI reading for the construction sector slammed to its lowest in four-months to read 53.3 after a March reading at 56.4. The euro powered to its highest against the pound in a little over a year rising to 90.20 pence.
Japanese yen –The sudden wave of lost confidence in the dollar washed away earlier losses for the Japanese yen turning the tide into a rally. The Japanese unit is relatively quiet on account of Golden Week celebrations in Japan but today rose to ¥80.85 from a session high for the dollar at ¥81.20.
Canadian dollar – The commodity dollars continue to make headway despite a rocky start purely on account of the systemic dollar weakness. The loss of risk appetite that started on Tuesday as dealers braced for further warnings over a need to display additional vigilance in terms of homeland security initially boosted the greenback and sent commodity prices lower. Growth-sensitive units equally fell. However, while that tone remained intact during the European session, that trend has speedily evaporated with more interest in holding anything but the dollar. The Canadian unit earlier buckled to $1.0452 U.S. cents before reversing course rising to $1.0496 cents.
Aussie dollar – The Australian dollar earlier slid to its weakest in five sessions but finally used the weaker greenback to find its legs and rally back to the black for the day. And while there was some decent domestic data released on Wednesday dealers are more concerned about the lackluster performance of China and what further monetary tightening on the mainland would mean for Australian exporters already contending with a harsh climate for its currency. The Aussie slumped to $1.0789 U.S. cents having traded above $1.1010 at the start of weekly trading. It recently traded at $1.0863 cents.
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.
