Forex Investment and Currency Trading

Carry trades were unwound overnight as increasing risk aversion saw low yielders outperform high yielders across the board. Equities drifted lower in both Asia (Nikkei down 1.05%, HSI 1.35% lower) and Europe (down ½-1%) in line with the flight-to-quality bid, as credit concerns were once again in the spotlight with news that Citigroup is currently in talks to sell $12bn of loans at a loss to Apollo Management, Blackstone Group LP and TPG Inc LP, sparking fears that other leveraged loan players maybe suffering similar problems with their leveraged loan portfolios. In terms of data, the only release of note out of the US today are the Wholesale Inventories for February which are expected to have grown 0.5%. With respect to Fed rhetoric, today Bernanke speaks on financial literacy, Kroszner testifies on Housing Legislation, and Fisher speaks on the US economy.

USD/CAD traded within a tight 30pip range overnight. There are no data releases scheduled in Canada today. Support for USD/CAD is at 1.0112 while resistance is at 1.0166.

EUR/USD traded with little direction within a 50pip range during a relatively quiet overnight session. The final estimate of Q4 GDP was unchanged in line with expectations at 0.4%m/m, 2.2%y/y.

GBP/USD initially sold off overnight down to a 6 week low of 1.965 as Nationwide consumer confidence in March fell to 77, the lowest reading since the inception of the Index in May 2004. GBP soon recouped those losses against USD however, as the release of Feb UK production data came firmer than expected with industrial output rising 0.3%m/m, 1.3%y/y (vs. consensus 0.1%, 1.2%) and manufacturing output growing 0.4%m/m, 1.9%y/y (vs. consensus 0.0%, 1.5%), however, these data are of limited importance to the BoE policy debate given the dominance of the deteriorating services and consumer sectors in the UK economy.

USD/JPY sold off overnight as rising risk aversion led to carry trade unwinds. In terms of domestic news, the BoJ unanimously voted to leave the overnight call rate at 0.5% as was widely expected by the market, and after a three week vacuum, Japan’s upper house of parliament approved acting Governor Shirakawa as the permanent head of the BoJ by 231 votes to 7, however, they voted against the government’s candidate for deputy governor, rejecting Hiroshi Watanabe by 121 votes to 115.

AUDUSD came off its three week highs, dropping 0.5% as AU consumer confidence continued to decline in April, falling 1.3% to a 15 year low of 87.4. The AUD move lower was in parallel to other high yielding currencies as risk aversion encouraged the selling of carry. On a positive note for AUD, BHP announced that it has agreed a coal price of $300/tonne with Japan’s JFE Steel, up from $98/tonne last year.

NZD/USD drifted lower from a high of 0.8005 in line with other high yielders. RBNZ Governor spoke overnight and appeared to go out of his way to note that “The New Zealand economy remains fundamentally sound and credit worthy” and “the underlying economy remains robust.” No doubt, there was an element of jawboning in his speech in an attempt to ensure that the doom & gloom stories/anecdotes do not become self fulfilling, however, he did note that the high level of the NZD is constraining NZ exports.