It has been a week which has done nothing to allay fears over the slowing pace of the global economic recovery. The bright spots in the UK were a fall in government debt levels and rising retail sales but stubbornly high inflation and sluggish growth have kept the pressure on. Three of yesterday’s data releases make the case for the global economy bears; the Philadelphia Fed survey of factory sentiment fell to its lowest level since July 2009, the weekly measure of fresh claims for US unemployment welfare payments rose by 12,000 and, in Canada wholesale shipments fell by 0.3 percent last month.
Understandably the Canadian Dollar had a poor day, slinking back to its weakest level against the Pound within its current range. However, the potential for a takeover in which Australian company BHP Billiton is seeking to buy Canadian company, Potash Corp in a deal worth some C$40 billion is keeping traders on their toes. A trade of this size would definitely have a short term effect on the value of the Canadian Dollar; strength if it goes through and weakness if it doesn’t plus an equal and opposite effect on the Aussie Dollar. Few traders have the inside track on the progress or otherwise of the bid so sitting on their hands is probably the most astute position to take. This afternoon’s Canadian inflation data is likely to add more weakening pressure on the Canadian Dollar if the numbers are as poor as forecasts suggest.
The US Dollar was far more mixed. There is a dilemma amongst investors when poor US data emerges; sell the US Dollar and run away to safe havens elsewhere or buy US Treasury’s as a safe haven and therefore buy the US Dollar to fund the purchase. When they run away from the USD, the Japanese Yen and Swiss Franc both strengthen and so does the Pound but to a far lesser extent.
However, Sterling had quite a good day yesterday, rising to the top end of its ranges after the positive data mentioned above. It remains at those levels this morning but he markets are edgy and after a week in which the Pound has gained strength, a period of profit taking before the weekend should be expected. This is especially so when there is absolutely no meaningful data due to be released from the UK today.
Comments from the Governor of the Reserve Bank of New Zealand about expected higher levels of inflation have weakened the NZ Dollar overnight. Governor Bollard commented that he felt tax hikes would push inflation up to 5 percent and didn’t show any alarm at inflation around those levels. That would suggest he is pretty sanguine about such a move and that poured very cold water on anyone looking for higher NZ interest rates in the short term. Without the lure of higher yields and in an environment where risk is a four letter word, NZD weakness was inevitable. Sterling is pressing the NZD against the same ceiling it has visited a number of times but failed to break. If, as I suspect, traders are likely to take profit on Sterling’s strength, today is the day that NZ Dollar buyers may want to cover some of their requirements.
The big news in Australia is the Election taking place this weekend. The outcome is very uncertain and a coalition is a real possibility. I wouldn’t be at all surprised if the Australian Dollar was sold off in late trade in New York before the markets shut down for the weekend and that is a perfect opportunity to place an automated order at perhaps a slightly tongue in cheek level. Who knows; you may just get your wish and the cost of an order is zippo, nish, nada. Mad not to really.
Other than the Canadian inflation numbers, there is really nothing of note in today’s data diary. Whilst that probably means traders will just take profits on the week’s movements which mean a bit of correction in exchange rates, it does mean I may have the time to get out and see the Spitfire flying over London. This flypast to mark the 70th anniversary of Churchill’s “never in the field of human conflict was so much owed by so many to so few” speech, is set to pass over many of the airfields used during the Battle of Britain and along the Thames. I hope you get to see and especially hear the flight because you are probably the same as me. The sound of Merlin engines in the sky and the silhouette of those elegant aeroplanes never fails to raise the hairs on the back of my neck and yet I wasn’t even born until 14 years after the war ended so it must just be an inherited subconscious thing I guess.