Forex Investment and Currency Trading

USD
The USD has risen versus all G7 FX as the more benign environment towards risk and a focus on troubles in European banks underpin sentiment. The market appears to be distracted by troubles in the rest of the world which should help to back a renewed faith in the strength of the US dollar. FX markets will be watching US ISM manufacturing this morning. Overall, given the soft tone of most regional surveys market continues to look for the ISM manufacturing to decline 47.0 in March from 48.3 in February which would be broadly USD negative.

EUR/USD

The EUR has fallen against the USD this morning after yesterday’s push higher. Final euro area manufacturing PMI came in as expected at 52. The unemployment rate remained stable at 7.1% as German unemployment fell more than expected. However, news of write downs by UBS may lead some speculation of further problems in European banking putting downward pressure on EUR. This move will be exaggerated by falling Euribor rates.

GBP/USD

GBP traded lower through yesterday’s NY and Asian sessions only to bounce sharply higher this morning. UK manufacturing PMI came in stronger than expected, 51.0 actual vs. 50.3 expected, but the details of the report were soft and not particularly conducive to further GBP strength.

USD/JPY

USD/JPY is higher on the back of stronger equity markets in Asia and Europe. European equities reversed early morning losses to trade around 1% higher. Even amidst a fresh round of write downs US equity markets look to open in positive territory, Dow futures are trading up 92 points and S&P futures are up 11.9,  which should push USD/JPY higher still.

AUD/USD
 

The RBA held rates constant as expected at their meeting last night. The tone of the commentary, was, however, less hawkish than expected. Nonetheless, the forward guidance that current monetary policy is setting does not rule out further rate hikes as CPI still remains at uncomfortable levels. The RBA’s commentary in conjunction with gold slipping back below $900/oz has put pressure on AUD. However, AUD appreciation in the near term is still likely as rate differentials continue to remain supportive of AUD buying.

NZD/USD

NZD/USD largely tracked AUD/USD overnight and fell on additional speculation that growth will continue to slow. The surprisingly weak New Zealand business confidence survey continued to weigh on the kiwi dollar through Asia and London trading. NZD should remain under pressure barring a strong return to risk appetite or regional economic data indicating that the New Zealand economy is not as weak as currently believed.

USD/CAD
 

Canada’s January GDP showed a meaningful rebound from December’s -0.7% print, but CAD failed to benefit. Real net exports continue to be a large drag on Canadian growth. As such, we expect a 50bp cut at the April 22nd BoC meeting and a likely subsequent 50bp in cuts over the course of the year. Broad USD strength further encouraged a higher USD/CAD. USD/CAD will likely be driven by the results of today’s US ISM Manufacturing survey. A strong print will likely continue to push the pair higher.

Commodities Update
Gold has fallen over 2% in European trading, driven largely by a liquidation in positioning which remains a theme across most metals. Oil is also under pressure and is now down almost 7% since last week’s highs. Additional declines in commodity prices should pave the way for USD strength. Oil is currently trading at $101.20/bbl and Gold is trading at $897.07/oz.