March 12, 2010

Daily outlook

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The dollar fell broadly on Friday as investors braced for another round of U.S. data, while a pick up in risk sentiment also enticed investors away for safe haven assets.

A report on U.S. retail sales is due this morning with expectations for a moderately negative reading in February, with severe winter weather seen as a factor. Market watchers will also get the first of two looks at U.S. consumer sentiment for March which is forecast to hold steady. Since consumers are the main engine of U.S. economic activity, household-related data tends to be highly influential.

The Canada dollar soared to a July 2008 high against its U.S. rival after local employment figures topped expectations. The Canadian economy created 20,900 jobs in February, which helped to lower the nation’s unemployment rate to 8.2% from 8.3% the prior month. Expectations were for a gain of 20,000 payrolls last month. The better-than-expected employment report suggested the Canadian economy’s recovery was gaining force, which could lead to a sooner-than-expected rate hike by the Bank of Canada.

The euro rose to a three-week high against the dollar and to a two-week peak against the Japanese yen on easing worries about a Greece debt default and by the improved environment for risk appetite. The single currency was also supported by a record rise in industrial output in the 16-nation bloc in January.

Sterling neared highs for the week against the greenback after a poll pointed to a reduction in political uncertainty ahead of a general election expected in May. The UK poll showed the Conservatives (39%) ahead of the incumbent Labour Party (26%).

Currencies outlook

CAD: The Canadian dollar soared to a 20-month peak against the U.S. dollar after local employment data just topped expectations. Canada added 20,900 workers in the month of February, above the 20,000 forecast. The nation’s jobless rate surprisingly dipped to 8.2% from 8.3%. The Winter Olympic Games in Vancouver were seen as offering a temporary increase to Canadian payrolls last month for help with retail, tourism and security among the key services that were needed. Still, today’s better-than-expected jobs data helped to paint an increasingly better picture of Canada’s economic recovery, one that might require a sooner-than-expected interest rate hike by the Bank of Canada.

EUR: The euro strengthened to a mid-February high against the U.S. dollar, supported by easing concerns about Greece’s financial crisis, improved risk sentiment and by positive euro zone data. Industrial production in the 16-nation bloc rose by a record 1.7%(m/m) in January, which was the highest reading since records began in 1990. Investors had expected a figure of +0.7%(m/m) in January. Adding to the brighter outlook for the region’s manufacturing sector, the previous month’s figure was upwardly revised to a gain of 0.6% from the -1.7%(m/m) that was originally reported. The report bolstered optimism about the euro zone recovery, boosting the euro.
AUD: The Australian dollar notched a fresh seven-week high against the U.S. dollar as the rise in investor sentiment supported this higher-yielding currency. The Aussie had relinquished some of its recent gains earlier this week on worries China might take action to slowdown its economy after data Thursday showed consumer inflation soared to a 16-month high. Investors fear that China could take additional steps like boosting lending rates which could reduce demand for Australia’s key exports. The Aussie’s upward momentum had also been slowed this week after employment figures showed an increase of only 400 jobs in February, versus expectations for a gain of 15,000.
USD: After falling broadly overnight, the dollar pared some of its losses after U.S. retail sales unexpected rose 0.3%(m/m) in February. Investors had expected a -0.2%(m/m) reading. Subtracting autos, retail sales came in at +0.8%(m/m) versus the +0.1%(m/m) forecast. Market participants had expected severe winter snowstorms to be a drag on consumer spending last month. However, taking some of the gloss off today’s surprisingly positive data, retail sales in January were downwardly revised to +0.1%(m/m) from +0.5%(m/m). Nevertheless, the upside surprise boosted the greenback by suggesting the U.S. recovery will be a sustainable one. Market watchers now look to more U.S. data due later this morning on consumer sentiment by the University of Michigan and business inventories.