Aussie dollar remains bullish - good jobs data fuels more rate rises

US Dollar:

The dollar is higher against major currencies except the Yen Thursday, with the euro and pound under pressure with home grown demons raising issues such as Greek debt worries and a potential UK hung parliament. International investors are favouring the greenback of late, not only because of the prospect of the US coming out of the global economic crises first out of the major currencies, but also because of the issues in Europe which seem to be weighing down the single currency and sterling. A drop in risk appetite also fuelled the buck as US stock futures decreased as a bigger than expected drop in consumer credit weighed. Comments from the Federal Reserve officials over how to deal with economic concerns such as debt and inflation also riled sentiment. In addition, Thomas Hoenig, president of the Reserve Bank of Kansas city, said the Fed could in¬crease key rates toward 1% from near 0% to ward against inflation and possible bubbles in financial markets without hurting the nascent economic recovery. Data 15.30: Unemployment Claims 434k from 439k.

Pound:

A mixed day yesterday for sterling saw big swings against both the dollar and euro as a good early morning session posted $1.5250 for cable and 1.14 against the euro, but then came weaker than expected PMI data which saw the pound sold off across the board. There was a slight fight back against the dollar, but the prospect of a hung parliament in the UK, with recent polls suggesting this to be coming even more of a potential result, the more the pound comes under pressure from the safety of the dollar. Sterling has fought back against the euro, helped by the continued story of Greek debt issues in the E/Zone, which are having just as much of a drag on the single currency as the prospect of a hung parliament in the UK for the pound. Sterling is likely to consolidate against the euro and dollar ahead of the Bank of England interest rate announcement due today. At midday, the BoE is widely expected to leave its key lending rate at a record low of 0.5%, while keeping its money-creating quantitative easing program on pause. Data 09.00: Halifax HPI M/M 0.6% from –1.5%. 09.30: Manufacturing Production M/M 0.7% from –0.9%. 12.00: BoE Interest Rate expected unchanged at 0.50% & Asset Purchase facility expected unchanged at 200B & MPC Rate Statement.

Euro:

Yesterday saw the euro slump against most major rivals as investors continued to fret over Greece’s funding problems and sovereign debt risk in Europe. The common currency fell as far as $1.3226 on the dollar, its lowest point since March 26th, to bring its losses against the dollar to 6.9% this year. The euro fell to 0.8762 on sterling, then made back some losses after weak UK economic data, but normal service has been resumed this morning as EUR/GBP has now hit a low of 0.8748. The euro also dropped to a one-week low against the yen. Pressure on the euro intensified after Greek banks, which have seen their borrowing costs soar as a result of the country’s fiscal problems, asked the Greek government to tap an extra €17bn in unused liquidity meas¬ures as they struggle to cope with the economic crises. With the European Central Bank virtually certain to leave interest rates unchanged today, and for months to come, the onus today will be on Jean-Claude Trichet to use his monthly news conference to reassure investors that Greece can survive its chronic debt worries.
Data 10.00: E/Zone Retail Sales M/M 0.0% from –0.3%. 11.00: German Industrial Production M/M 0.7% from 0.6%. 12.45: ECB Interest Rate expected unchanged at 1.00%. 13.30: ECB Press Conference.

General:

• The Aussie dollar looks set to continue its rise against other major currencies with interest rates looking likely to re¬main on the upside. Increases in full-time jobs keeps the Reserve Bank under pressure to extend its run of interest rate rises.

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