FX: The Japanese yen benefited from a weaker US dollar
The U.S. dollar is trading mixed after a report showed U.S. pending home sales rose one percent in December after a deep plunge in November. The small gain was expected since the federal homebuyer tax credit was extended. Despite a dip this morning, the greenback is expected to remain strong after last week’s strong gross domestic product data, which indicated the United States was rebounding faster than both the Eurozone and Japan. This Friday’s Nonfarm Payroll report is high on the agenda. The U.S. labor market is expected to show an addition of a net 13,000 jobs in January.
The U.S. dollar also softened against the euro as worries surrounding Greece’s fiscal problems dimmed. However, euro gains were capped on worries over deficits in other Eurozone countries, including Portugal. The European Central Bank (ECB) Governing Council member Vitor Constancio said Portugal’s economy needed “significant adjustments.” The ECB is expected to keep its main rate unchanged at 1 percent this week.
The Sterling fell ahead of the Bank of England policy decision later this week. The currency is also weighed down by a disappointing fourth quarter UK gross domestic product data and political concerns. A general election in June could result in a hung parliament which would hold back the next government from making decisions needed to tackle UK’s large budget deficit.
The Japanese yen benefited from a weaker US dollar. Recent talk that a slowdown in Chinese bank lending will curb growth in China, boosting demand for the yen as a safe haven.
The Canadian dollar gained after commodity prices extended yesterday’s gains. Crude oil is back above $75/barrel. The main focus for this week is Friday’s Canadian and U.S. jobs data.
The Australian dollar was beaten down after Australia’s central bank surprised the market and kept interest rates on hold at 3.75 percent while leaving the door open for future rate hikes. Australia has the highest rate in any developed economy. The currency may soften further as the markets begin to bet on rate hikes by the Federal Reserve.
The New Zealand dollar also fell after the Reserve Bank of Australia’s central bank kept interest rates on hold in a surprise move overnight. Meanwhile, the Reserve bank of New Zealand is in no hurry to remove its monetary policy stimulus after wage growth was reported at its slowest pace in nine years. Out on Thursday is the unemployment data, which is expected to rise to 6.8 percent in the fourth quarter from 6.5 percent in the third quarter.
