Stocks Rise 400 Points, Is Risk Appetite Here to Stay? (page 2 of 2)

These are big moves for the currency market which is why even though we believe that carry trades could see further gains, they should be limited because volatility and risk aversion remains high. Until the threat of another bank failure moves to the back of the minds of Wall Street traders, the risk appetite that we have seen today is not expected to stay. Meanwhile Japan faces a leadership vacuum beginning tomorrow. As of Wednesday, Bank of Japan Governor Fukui's five year term officially comes to an end. This could not come at a worse time for Japan. They rapidly need to find a replacement. Thankfully, the impact on the Japanese Yen should be limited because risk appetite dominates for the time being.

Euro Weakens After Fed Rate Decision, but Rally May Not be Over

The Euro sold off after the FOMC rate decision and even though we could see further Euro weakness over the next 24 hours, the rally is not over. The move today reflects nothing more traders adjusting positioning after the Federal Reserve cut interest rates less than expected. However it is important to remember that not only does the ECB expect to keep interest rates unchanged, but they remind us everyday that price stability is their top priority. They have remained calm throughout the past week with no European banks at the brink of collapse and for these reasons, we believe that the outlook for the Eurozone is still more promising than the outlook for the US. There is no significant Eurozone economic data due for release tomorrow other than the Eurozone trade balance. Meanwhile Switzerland released its fourth quarter industrial production numbers and like the Eurozone, their data beat expectations.

Return of Risk Appetite Drives Australian, Canadian and New Zealand Dollars Higher

The 400 point rally in US stocks has driven the Australian, New Zealand and Canadian dollars higher. Even though the RBA felt that inflation could rise further and the economy remains strong, the minutes from the last monetary policy meeting was less hawkish than the February meeting. New Zealand Finance Minister Cullen on the other hand warned that the country could not rule out a recession, but there was no impact on the New Zealand dollar. Canada reported stronger than expected consumer prices and although the annualized pace of headline inflation slowed, the pace of core price growth accelerated. Only minor data are expected from the commodity producing countries tomorrow including Australian leading indicators, New Zealand credit card spending and Canadian wholesale sales.