Forex Investment and Currency Trading

USD was stronger overnight as the dollar rallied against all G10 currencies with DXY reaching a week high of 72.372, while risk appetite showed signs of improving as carry trade buying was evident with both JPY and CHF trading lower. The data focus today in the US will be durable goods orders (cons: 0.1%, 0.5% ex transport), new home sales (cons. -1.7%m/m), and the weekly jobless claims data (cons: 375k).

USD/CAD traded a 50pip range around the 1.0170 handle overnight ahead of the BoC releasing its Monetary Policy Report (MPR) later today which will expand on the forecast changes included in the press release issued at the conclusion of Tuesday’s policy-setting meeting. At that time, the BoC signalled that further monetary easing is likely, though they dropped the reference to “in the near-term” contained in the previous statement. Estimate sees the Bank cutting rates again, though only by 25bp, and then pausing to further assess the impact of their actions on the economy.

EUR/USD traded moderately lower before tumbling 170pips down to 1.5719 as the German IFO Survey, which has surprised to the upside for the past three months, came out softer than expected in April, falling from 104.8 in March to 102.4 (cons. 104.3). There are a whole host of ECB speakers commenting today, with ECB President Trichet and council members Stark, Weber, Hurley, Ordonez, Liebscher, Gonzales-Paramo, and Orphanides speaking at an ECB conference on “A strategic vision for statistics: Challenges for the next 10 years.” The event risk to EUR associated with today’s ECB rhetoric is skewed to the downside, with the currency vulnerable to any about-turn in the recent hawkish comments from ECB officials.

CHF was the worst performing G10 currency overnight, falling 1.10% against USD and 0.12% against EUR as demand for carry instigated a sell-off in CHF. Overnight, the SNB lowered the one week repo rate from 2.00% to 1.90% in an attempt to drive the 3-mth LIBOR rate back down to its 2.75% target.

GBP/USD drifted below yesterday’s lows overnight, before finding support at 1.9712. March retail sales were marginally softer than expected, but given revisions to the data for the 1st two months of the year, these data paint a surprising upbeat picture of the consumer sector which both takes the prospect of a May cut off the table and, nearer term, points to some possibility of an upside surprise as regards tomorrow’s Q1 GDP report. GBP will likely find further direction today from the release of the April quarterly CBI Industrial trends survey.

NZD/USD fell 1% overnight, down to a low of 0.7905. The RBNZ left rates on hold at 8.25% as was widely expected by the market, however, the accompanying statement clearly indicated that the Bank has dropped its modest tightening bias and has moved to a more neutral stance, noting that there is “significant downside risk to future activity”. Although the RBNZ also noted that there is “upside risks to inflation”, market believes the Bank is inching towards the adoption of an eventual easing bias. Market maintains the view the RBNZ will begin its easing campaign in Q4 2008, with a 50bps cut.