The Forex Daily Digest – October 5, 2009
The G7 nations released a final report after their meeting this weekend in Istanbul which stated that too much instability in foreign exchange markets could harm the international economy and the financial system, and again welcomed China's commitment to move toward greater currency flexibility. The language on currencies in the final communiqué issued by the G7 finance ministers and central bankers was nearly identical to a statement released after their last meeting in April.
IMF Chief Dominique Strauss-Kahn believes international government stimulus is still required to prop up the current weak global economic situation because increasing unemployment remains a damaging financial issue. He told the gathering at the G7 summit that removing the stimulus already in place would hinder global economic recovery. Strauss-Kahn also said that Europe may experience a slower recovery than other parts of the world because European economies are less “flexible” than others.
Meantime, G7 international finance ministers pushed for a “strong dollar” amid concern its slide will impede their recoveries from the worst global recession since World War II. The USD’s 13 percent fall this year against a basket of seven currencies threatens foreign economies by making their exports more expensive. At the same time, U.S. Treasury Secretary Tim Geithner was forced to defend its status as the world’s sole reserve currency.
The USD turned lower against major counterparts at the end of last week, reversing an earlier gain after the U.S. government said the economy lost more jobs than expected jobs in September. The U.S. labor market weakened again last month as 263,000 payroll jobs were lost and the unemployment rate rose a tenth to a 26-year high of 9.8%. It was the 21st consecutive month of job losses. Since the recession began in December 2007, 7.2 million jobs have been lost. Total hours worked in the economy fell by 0.5%. The average workweek fell to an all-time low of 33 hours. Average hourly earnings rose just 1 cent, or 0.1%, to $18.67.
The CAD fell due to the results of the U.S. Non-Farm Payrolls report, casting doubt on the economic recovery and weakening the attraction of currencies tied to growth. One Canadian economist said that the U.S. payroll report was great news for the U.S. dollar but “bad news for commodities and the Canadian dollar.” The loonie gained 12 percent this year against the greenback, after losing a record 18 percent last year, on speculation a global rebound will spur demand for the nation’s raw materials.
Sterling found little lasting support from data that showed U.K. house prices rose 0.9% in September, bringing the average price in line with the year-ago figure. At the same time, data showed a further drop in activity in the U.K. construction sector.
The GBP fell against the USD, headed for a third straight weekly drop, as U.K. stocks dropped amid signs the worst of the recession has yet to pass. The British currency also weakened against the EUR after Nationwide Building Society revised its increase in house prices for August to 1.4 percent, from 1.6 percent.
The AUD fell from its highest level in more than a year on speculation the currency’s gains have come too rapidly and as U.S. stocks dropped for a third day, damping demand for higher-yielding assets. The AUD and NZD currencies also weakened as the MSCI Asia Pacific index declined by 1 percent. Both the “aussie” and the “kiwi” found some strength against the USD and JPY amid signs the outlook for manufacturing in China, Australia and Japan is improving.
The President of the World Bank, Robert Zoellick, said the U.S. dollar should remain the world's key reserve currency, but much depends on how the U.S. authorities deal with the exit from the economic and financial crisis.
Russia and China are advocating the creation of a new super currency, which Fed Chairman Ben Bernanke said before the House Financial Services Committee last week that would weaken the U.S. dollar if it were established. Bernanke added that the dollar is currently not at any immediate risk of losing its status as a reserve currency; however he admitted that if the U.S. doesn't put its "economic house in order," increased risk could grow for the U.S. dollar.
U.S. economic reports out in the coming week will include the ISM Services index for September will be released on Monday morning, the EIA Crude Inventories for the week of October 2nd, the August Consumer Credit report, September’s Treasury Budget, Chain Store Sales, Initial Jobless Claims, August’s Wholesale Inventories and the Trade Balance numbers for August.
The third quarter earnings season begins on Wednesday, October 7th, when Alcoa (AA) releases its quarterly numbers after the market closes. Other earnings out this week include Pepsi Bottling, Yum! Brands, Family Dollar, Acuity Brands, Costco Wholesale, Monsanto, Marriott International, and Infosys Technologies.
Happy Trading,
James Dicks
IMF Chief Dominique Strauss-Kahn believes international government stimulus is still required to prop up the current weak global economic situation because increasing unemployment remains a damaging financial issue. He told the gathering at the G7 summit that removing the stimulus already in place would hinder global economic recovery. Strauss-Kahn also said that Europe may experience a slower recovery than other parts of the world because European economies are less “flexible” than others.
Meantime, G7 international finance ministers pushed for a “strong dollar” amid concern its slide will impede their recoveries from the worst global recession since World War II. The USD’s 13 percent fall this year against a basket of seven currencies threatens foreign economies by making their exports more expensive. At the same time, U.S. Treasury Secretary Tim Geithner was forced to defend its status as the world’s sole reserve currency.
The USD turned lower against major counterparts at the end of last week, reversing an earlier gain after the U.S. government said the economy lost more jobs than expected jobs in September. The U.S. labor market weakened again last month as 263,000 payroll jobs were lost and the unemployment rate rose a tenth to a 26-year high of 9.8%. It was the 21st consecutive month of job losses. Since the recession began in December 2007, 7.2 million jobs have been lost. Total hours worked in the economy fell by 0.5%. The average workweek fell to an all-time low of 33 hours. Average hourly earnings rose just 1 cent, or 0.1%, to $18.67.
The CAD fell due to the results of the U.S. Non-Farm Payrolls report, casting doubt on the economic recovery and weakening the attraction of currencies tied to growth. One Canadian economist said that the U.S. payroll report was great news for the U.S. dollar but “bad news for commodities and the Canadian dollar.” The loonie gained 12 percent this year against the greenback, after losing a record 18 percent last year, on speculation a global rebound will spur demand for the nation’s raw materials.
Sterling found little lasting support from data that showed U.K. house prices rose 0.9% in September, bringing the average price in line with the year-ago figure. At the same time, data showed a further drop in activity in the U.K. construction sector.
The GBP fell against the USD, headed for a third straight weekly drop, as U.K. stocks dropped amid signs the worst of the recession has yet to pass. The British currency also weakened against the EUR after Nationwide Building Society revised its increase in house prices for August to 1.4 percent, from 1.6 percent.
The AUD fell from its highest level in more than a year on speculation the currency’s gains have come too rapidly and as U.S. stocks dropped for a third day, damping demand for higher-yielding assets. The AUD and NZD currencies also weakened as the MSCI Asia Pacific index declined by 1 percent. Both the “aussie” and the “kiwi” found some strength against the USD and JPY amid signs the outlook for manufacturing in China, Australia and Japan is improving.
The President of the World Bank, Robert Zoellick, said the U.S. dollar should remain the world's key reserve currency, but much depends on how the U.S. authorities deal with the exit from the economic and financial crisis.
Russia and China are advocating the creation of a new super currency, which Fed Chairman Ben Bernanke said before the House Financial Services Committee last week that would weaken the U.S. dollar if it were established. Bernanke added that the dollar is currently not at any immediate risk of losing its status as a reserve currency; however he admitted that if the U.S. doesn't put its "economic house in order," increased risk could grow for the U.S. dollar.
U.S. economic reports out in the coming week will include the ISM Services index for September will be released on Monday morning, the EIA Crude Inventories for the week of October 2nd, the August Consumer Credit report, September’s Treasury Budget, Chain Store Sales, Initial Jobless Claims, August’s Wholesale Inventories and the Trade Balance numbers for August.
The third quarter earnings season begins on Wednesday, October 7th, when Alcoa (AA) releases its quarterly numbers after the market closes. Other earnings out this week include Pepsi Bottling, Yum! Brands, Family Dollar, Acuity Brands, Costco Wholesale, Monsanto, Marriott International, and Infosys Technologies.
Happy Trading,
James Dicks
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