Poor US employment data boosts USD ECB urges banks to do their bit US holiday should increase volatility
Friday, 3 July 2009
Today's Highlights
Poor US employment data boosts USD ECB urges banks to do their bit US holiday should increase volatility
FX Market Overview
I may be alone in wondering why we are all supposed to be manically panicking over swine flu but it doesn’t appear to be any more virulent or fatal than any other flu strain. I do tend to fall into the conspiracy theorist school of thinking and governments do love an external threat when they are themselves under pressure. Perhaps the timing of this ‘virus of mass destruction’ is a tad convenient.
What is inconvenient is that yesterday’s us employment data was much worse than forecast. To be fair, the forecasts had been quite upbeat despite the ADP employment report which was released a few days earlier being pretty poor. The negative tone of the official employment data acted as a reality check to investors who had started to believe the hype that the recession is over. When the US unemployment rate reaches a 26 year high, you have to believe that we are still in the mire and that realisation is exactly what prompted the strength in the US Dollar.
I know US Dollar strength doesn’t spring to mind as a logical reaction to poor US data but US Treasuries provide the certainty and guarantee of return that investors want when they are too fearful to buy riskier but more profitable assets and that can be seen in the fact that when the US Dollar strengthened yesterday, the New Zealand Dollar weakened. Whilst NZ assets return a higher interest rate yield, they don’t offer quite the same perceived security as those of the US.
This weakness in the NZ Dollar is fantastic news for anyone migrating to or importing from New Zealand and we may even see slightly higher levels in this pair in the days ahead. In fact, with this being a long weekend break in America, liquidity in the financial markets will be down by roughly 20% and that does create an environment where relatively small transactions can move exchange rates; hence greater volatility and consequently, better buying levels. Speak with your Halo Financial consultant if you want to use this period to try to enhance your currency exchange.
In other news, the European Central Bank left its interest rates on hold yesterday. This was widely expected but we were more interested in the tone they adopted in their press conference. To use a tennis metaphor, the head of the ECB, Jean Claude Trichet lobbed the ball right back into the court of the banks and stepped back to the base line as he suggested it was time for the banks themselves top play their part in using the extensive sums made available by the ECB to ship loans out to industry and get the economy restarted. In simple terms, we’ve given you all this money, now use it. That didn’t impact upon the Euro particularly and we start today with Sterling at similar levels to yesterday against the Euro.
The other major mover yesterday was the Canadian Dollar which offered a three cent range against the Pound yesterday as traders tried to assess what influence the poor US data would have on the CAD. Whilst the Sterling - Canadian Dollar exchange rate has been volatile over the last 36 hours, it is still in a range between C$ 1.8750 and C$ 1.90. It is unlikely to break that pattern until after the weekend but the range could expand in the illiquid US holiday markets. Orders at C$ 1.91 could be triggered within this melee.
Today’s financial news diary is devoid of anything dramatic. The news channels will be awash with Andy Murray news, so we’ll all be bored of hearing about his name by the end of the day but I hope he does well. I would just warn against watching the interview after the game for fear of falling asleep. But it is a big weekend for sport with Wimbledon finishing, Henley Regatta underway, the last Lions test where it is just pride at stake and I was given the chance to drive a full on Hummer off road as a birthday present by the other members of the Halo Financial team and I am doing that tomorrow. I can’t wait.
I hope yours is a terrific weekend and let’s catch up on Monday.
What is inconvenient is that yesterday’s us employment data was much worse than forecast. To be fair, the forecasts had been quite upbeat despite the ADP employment report which was released a few days earlier being pretty poor. The negative tone of the official employment data acted as a reality check to investors who had started to believe the hype that the recession is over. When the US unemployment rate reaches a 26 year high, you have to believe that we are still in the mire and that realisation is exactly what prompted the strength in the US Dollar.
I know US Dollar strength doesn’t spring to mind as a logical reaction to poor US data but US Treasuries provide the certainty and guarantee of return that investors want when they are too fearful to buy riskier but more profitable assets and that can be seen in the fact that when the US Dollar strengthened yesterday, the New Zealand Dollar weakened. Whilst NZ assets return a higher interest rate yield, they don’t offer quite the same perceived security as those of the US.
This weakness in the NZ Dollar is fantastic news for anyone migrating to or importing from New Zealand and we may even see slightly higher levels in this pair in the days ahead. In fact, with this being a long weekend break in America, liquidity in the financial markets will be down by roughly 20% and that does create an environment where relatively small transactions can move exchange rates; hence greater volatility and consequently, better buying levels. Speak with your Halo Financial consultant if you want to use this period to try to enhance your currency exchange.
In other news, the European Central Bank left its interest rates on hold yesterday. This was widely expected but we were more interested in the tone they adopted in their press conference. To use a tennis metaphor, the head of the ECB, Jean Claude Trichet lobbed the ball right back into the court of the banks and stepped back to the base line as he suggested it was time for the banks themselves top play their part in using the extensive sums made available by the ECB to ship loans out to industry and get the economy restarted. In simple terms, we’ve given you all this money, now use it. That didn’t impact upon the Euro particularly and we start today with Sterling at similar levels to yesterday against the Euro.
The other major mover yesterday was the Canadian Dollar which offered a three cent range against the Pound yesterday as traders tried to assess what influence the poor US data would have on the CAD. Whilst the Sterling - Canadian Dollar exchange rate has been volatile over the last 36 hours, it is still in a range between C$ 1.8750 and C$ 1.90. It is unlikely to break that pattern until after the weekend but the range could expand in the illiquid US holiday markets. Orders at C$ 1.91 could be triggered within this melee.
Today’s financial news diary is devoid of anything dramatic. The news channels will be awash with Andy Murray news, so we’ll all be bored of hearing about his name by the end of the day but I hope he does well. I would just warn against watching the interview after the game for fear of falling asleep. But it is a big weekend for sport with Wimbledon finishing, Henley Regatta underway, the last Lions test where it is just pride at stake and I was given the chance to drive a full on Hummer off road as a birthday present by the other members of the Halo Financial team and I am doing that tomorrow. I can’t wait.
I hope yours is a terrific weekend and let’s catch up on Monday.
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