Is this Only a Temporary Bounce For Carry Trades? (page 2 of 2)

Even though the Bank of Japan kept interest rates unchanged at 0.50 percent last night and warned that the next move on rates would be up, we expect them to leave interest rates at the same level for the remainder of the year. One key point that is worth paying attention to is the comment from Finance Minister Nukaga who said that the government is not thinking of large scale forex intervention. As USD/JPY neared 105, many traders questioned whether the BoJ would step into the markets to artificially push down the value of the Yen and according to Nukuga, they won't.

Bank of Canada Cut Interest Rates 25bp, More to Come

The Bank of Canada cut interest rates by 25bp to 4.00 percent and warned of more rate cuts to come despite much stronger than expected retail sales. According to the BoC statement, the risks to inflation were roughly balanced, but the risk to growth is skewed to the downside. Therefore further "monetary stimulus is likely to be required in the near term." We expect at least another 50 to 75bp of easing this year. Consumer spending is holding steady, but Canada is no longer immune to the slowdown in US growth which is why the USD/CAD rally may not be over. Australia will be reporting consumer prices this evening. The slowdown in producer price growth suggests that consumer price pressures could ease as well. With relatively decent fundamentals, we expect the Australian dollar to outperform the US dollar in the coming weeks.

Euro Headed Back Towards 1.50? British Pound Vulnerable Ahead of BoE Minutes

The Euro has rallied thanks completely to the surprise rate cut from the Federal Reserve since comments from ECB officials are growing less hawkish by the minute. Constancio said this morning that the chance of a US recession has increased and as a result, he sees revised expectations for European growth. Junker echoed the same message when he said that Europe no longer rules out a US recession. Although we do not expect the Eurozone to be immune from the rapid deterioration in the US economy, we also do not expect the European Central Bank to cut interest rates. As a result, the increasingly lower rates offered by the US and the steady rates offered by the Eurozone should send the Euro back towards 1.50 Meanwhile the British pound has also rallied, but traders should watch out for tomorrow's GDP numbers and the release of the minutes from the most recent central bank meeting. If you recall, the BoE left rates unchanged. A narrow margin would be perceived as pound bearish while a strong majority in favor of unchanged rates would be positive for the British pound. Finally, Switzerland reported weaker than expected retail sales growth, but that has had little impact on the Swissie.