Euro Hits Fresh 2 Month Low (page 2 of 2)

The fact that economic data did not worsen given the strength of the British Pound is just another reason why 6 percent rates is a valid possibility.

Sell-off in US Stocks Drive Yen Crosses Lower

All of the Yen crosses with the exception of USD/JPY came under the weight of US stocks today. This is clearly tied to the liquidation of carry trades because Japanese economic data was tepid. CGPI growth continued to slow in the month of May, bringing the annualized pace of growth down to 2.2 percent from 2.3 percent. Consumer confidence also deteriorated while bankruptcies increased by 21 percent. Even though Finance Minister Omi said last night that interest rates will have to rise in the long term, the data reflects a country that is not ready for another rate hike. Corporations are clearly hoarding their profits and not sharing it with their employees, which is the primary reason why the country as a whole is facing such weak growth prospects. However if the benefits of a weak Yen was to be reflected in some piece of data, it would have to be in trade. The Japanese Yen weakened significantly in the month of April and we expect this weakness to provide a big boost to the current account surplus.

Commodity Currencies Tumble on Liquidation of High Yielders

The Australian, New Zealand and Canadian dollars all weakened on the back of carry trade liquidation. In fact, the New Zealand dollar did not turn negative until the late US session. There was no further intervention by the Reserve Bank of New Zealand last night although Bollard did warn that the stretched economy is making the inflation target far more difficult to achieve. These words confirm that despite the intervention, the RBNZ still intends to raise interest rates this year. New Zealand business confidence is due for release tonight and we are expecting a sharp deterioration. Australian business confidence on the other hand increased from 13 to 15 in the month of May, which is in line with the overall improvements that we have seen in the economy. Like New Zealand, Australia is still expected to raise interest rates this year. Meanwhile softer oil prices pushed the Canadian dollar lower since first quarter productivity was actually stronger than expected. We expect the movements in the equity markets to continue to drive the price action in the commodity currencies.