Japanese Yen Extends Corrections, Signaling the Possible Return of Carry Traders (page 2 of 2)

British Pound - Despite softer manufacturing data this morning, the British pound has strengthened against the US dollar, Euro and Japanese Yen. Industrial production increased by a less than expected 0.1 percent in the month of January while manufacturing production dropped by 0.2 percent. On balance, the British pound has not done little this week after having broken down the prior week. The economic calendar in the week ahead is more interesting which should deliver some pound driven flows. We are expecting producer prices, the trade balance, more reports on the state of house prices and labor market data. Overall, the UK economy is holding up well and we expect the reports to reflect that. We will have to wait until March 21st to have more light shed on the outlook for UK monetary policy.

Japanese Yen - The reversal in the Japanese Yen continued as the currency loses more ground against the majors. A rosier outlook for the US economy has encouraged some traders to jump right back into the carry trade. The NZD/JPY and CAD/JPY were the best performing currency pairs of the day, as hawkish comments from RBNZ Governor Bollard earlier this week has traders buying New Zealand dollars in hopes of higher yields. Overnight, the only piece of data on the calendar was January machinery orders which were stronger than expected. The stability in the equity markets should have central bankers from around the world including the Bank of Japan breathing a sigh of relief. If the stock markets continue to rebound, traders may be comfortable enough to return their focus to the BoJ's rate tightening cycle. Looking ahead, we are expecting second quarter GDP, current account, Domestic CGPI, consumer confidence, industrial production and leading indicators next week. The Japanese economic calendar is busy which suggests that the market may continue to focus on the Yen.

Commodity Currencies (CAD, AUD, NZD) - The commodity currencies are all up strongly today thanks to a return of carry trade demand and firmer economic data. There were no Australian and New Zealand data released last night, but traders are most likely still reeling off of the hawkish comments from the RBNZ earlier this week. Canada on the other hand reported a firm rise in employment for the month of February and an unexpected increase in the trade surplus for the month of January. The Canadian economy has been performing very well and we are finally seeing that filter into loonie strength. In the week ahead, labor productivity, manufacturing shipments and capacity utilization are the only pieces of CAD data on the calendar. Australia will be reporting business confidence, labor market data and consumer inflation expectations. New Zealand has house prices, the Manpower survey and retail sales on the docket.