Euro: Record Oil Prices Will Keep the ECB Hawkish (page 2 of 2)

The CPI numbers today indicate that producers are finding it difficult to pass on higher costs to consumers which mean that they are taking a hit to profits. This trend cannot last forever before corporate profitability starts to seriously suffer or producers begin to raise prices. The UK economy is still in trouble, especially after house prices as measured by the Royal Institute of Chartered Surveyors (RICS) fell by the fastest pace in 30 years. At this rate, it is very likely that the UK could be following in the US' footsteps. In the meantime, employment numbers could help the GBP tomorrow. The improvement in the employment components of the manufacturing and service sector PMI reports suggest that there may have actually been job growth last month.

Higher Commodity Prices Failed to Lift the Canadian, Australian and New Zealand Dollars

Both commodity prices and the stock market have closed today, but that has failed to translate into strength for the Canadian, Australian and New Zealand dollars. This may be partially due to weaker New Zealand consumer prices and moderately dovish minutes from the latest Reserve Bank of Australia monetary policy meeting. Although prices are rising globally, it appears the strength of the NZD in the first quarter has appeared to offset much of that rise. The RBA believes that moderating demand should help to lower inflationary pressures which mean that they have no plans to alter interest rates in response to the latest inflationary pressures. The relationship between oil prices and the Canadian dollar has been weak as of late and for that reason, the CAD actually weakened despite record oil prices.

Japan Encourages Foreign Investment

The Japanese Yen crosses are mixed today which is hardly a surprise with little Japanese economic data on the calendar and risk appetite generally unchanged. The Nikkei Net reported that Japan has scrapped taxes on investment returns for all foreign fund or corporations seeking to invest in Japan. Countries like the US or Eurozone have been exempt from the up to 40 percent tax, but this new rule will make it more attractive for investors in oil rich countries like the Middle East to look at Japan as an investment destination.