Will Consumer Spending Crush the US Dollar? (page 2 of 2)

With the dollar continuing to fall, these investments could pick up pace, providing support for the ailing housing market.

Australian and New Zealand Dollars in Play

The Australian and New Zealand dollars will be in play tonight with the Australian employment report and New Zealand retail sales due for release. After two strong months of job growth, we expect the labor market to slow materially especially after Westpac reported that consumer confidence fell to the lowest level in 15 years. As for New Zealand, stronger credit card spending points to stronger retail sales. Meanwhile the Canadian dollar has also gained strength against the greenback thanks to surprisingly good economic data earlier this week and the continual rise in oil prices. We are closing in on $110 a barrel and as long as the US dollar continues to fall, oil prices will continue to rise. Canadian capacity utilization is due for release tomorrow, but that should not have any meaningful impact on the CAD.

British Pound Hits 2 Month High

The British pound rallied 230 pips to a 2 month high against the US dollar today. As we expected, the trade deficit narrowed in the month of January as the weakness of the sterling against the British pound drove up the volume of good sold to EU countries. The pound weakened against the Euro which tells us that the move in the GBP/USD may be due just as much to the strength of the British pound as the weakness of the US dollar. EUR/GBP on the other hand continues to gain strength as the monetary policy and economic data of the Eurozone come in stark contrast to the US and UK.

Japanese Yen Recovers on Stronger GDP

The Japanese Yen is trading within pips of its 8 year high against the US dollar. GDP growth in the fourth quarter was revised up from 0.6 to 0.8 percent, due largely to an upward revision to inventory investment. The Corporate Goods Price Index was also stronger than expected. In fact, the pace of growth was the fastest since 1981. However the current account surplus and confidence fell short of expectations as the strength of the Yen and weakness of the US dollar weighs on exports. This mixed bag of Japanese economic data gives us little indication on the impact that the US slowdown is having on the Japanese economy to date.