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Investment Options this week (13Jun08)
USD Jump in unemployment rate revives recession concerns; likely to drag on the Dollar near term · The USD received a boost early last Tuesday from Mr. Bernanke's comments expressing concern that USD weakness exacerbates US inflation expectations. Mr. Bernanke reportedly said: "We are attentive to the implications of changes in the value of the Dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations." The Fed appears to be watching the foreign exchange market closely with the possibility of intervention at some stage. The comments boosted the USD in the earlier part of last week, but the DXY (USD) Index moved sharply lower by the end of the week on the surprise jump in unemployment data last Friday. The jobless rate surged to 5.5 percent in May, the highest level since October 2004, from 5.0 percent in April. Recession concerns have revived once again and this is likely to be a drag on the Dollar near term.
EURO Surprise hint of a July rate hike by the ECB ·The ECB kept interest rates unchanged in line with expectations last Thursday. But ECB President Mr. Trichet surprised at the post-meeting press conference with the comment that a rate hike in July was a possibility. Council member Weber subsequently reinforced the hint of a rate hike in the coming month. We see this as a strong indication that the European Central Bank will move the "refi" rate next month and we now expect a 25 bps rate hike in July. The rate hike, if it comes through, will widen the policy rate spread with the Fed to 2.25 per cent. Euro appreciation is likely to be supported in the near term as market expectations of such a move builds up.
JPY Upward revision to USDJPY forecasts ·Our house forecast for the USDJPY has been revised upwards to 105 for end 2Q08 and 104 for end 3Q08. The outlook for the Japanese economy remains lackluster and we see little chance of an early BoJ rate hike, suggesting limited downside bias for the USDJPY. While a surge in risk aversion could provide some support for the Yen near term following last Friday's US unemployment report, the JPY remains fundamentally weak.
GBP GBP posted slight recovery on USD weakness ·The GBPUSD posted a recovery at the end of last week on the back of renewed USD weakness. In line with expectations, the BoE made no changes to its policy interest rate last Thursday. This week we will see the release of a slew of domestic data including May producer prices, April industrial production and jobs data.
CAD BoC likely to go for a 25 bps rate cut this week ·The USDCAD continued to push higher last week, boosted early in the week after US Federal Reserve Chairman Ben Bernanke last Tuesday hinted of support for a stronger US Dollar. The rise in the USDCAD was despite supportive factors for the CAD which included rebounding oil prices and positive domestic data such as the strong April building permits data and the May Ivey Purchasing Managers' Index data. Jobs data was largely in line with market expectations, with 8,400 jobs being created in May. This week, the BoC will deliver its interest rate announcement on Tuesday and the market expects a 25 bps interest rate cut.
AUD AUDUSD likely to remain supported for now ·Weakness in the AUDUSD following the US Fed Chairman's comments last Tuesday was short lived, as a stronger-than-expected Australian GDP report kicked in to support the Aussie Dollar. 1Q GDP rose 0.6 per cent quarter-on-quarter (3.6 per cent year-on-year), against consensus expectations of 0.2 per cent qoq (2.8 per cent yoy). The AUDUSD is likely to remain supported near term, especially if upcoming data further confirms that price pressures are not easing in line with expectations, amidst a sustained improvement in the terms of trade for the Australian economy.
NZD NZDUSD weaker on dovish RBNZ comments ·The NZDUSD tumbled last week after the RBNZ signaled that it may start cutting its policy interest rates later this year. The central bank kept the cash rate on hold last week, but Governor Alan Bollard reportedly said that if the economy "evolves in line with our projection, we are now likely to be in a position to lower the official cash rate later this year." The dovish comment surprised many in the market, dragging the NZDUSD markedly lower to 0.767 by the end of last week. The bias for the NZD is likely to remain to the downside near term.
KRW BoK likely to keep to the sidelines this week |
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An update on these Investment Options would be interesting. MoneyMails is a new sight tha has investment opportunities not available to the public. Members can also spend earnings on advertisement.
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