Forex Investment and Currency Trading

USD is stronger against all G10 currencies with the exception on GBP, though London trade has seen USD pull back from the highs seen in Asia when EUR/USD fell to a low of 1.5365. There has been little in the way of fundament news overnight, but the state of the US retail sector will be one of the main focus points this week with Wal-Mart reporting on Tues and Macys, JC Penny and Nordstrom reporting earnings reports on Weds. US Retail Sales will be released on Tuesday and the US CPI will be released on Wednesday.

GBP is outperforming significantly on the crosses with EUR/GBP around 50 points lower. April producer prices were sharply higher than expected with the annual growth rate of both the input and output measures forging new record highs (since ‘86) of 23.3% and 7.5% respectively (consensus 21.4% and 6.4%%). The most notable feature of these data, however, is the pronounced pick up in core output prices which jumped 1.0% in the mth (0.3% consensus) pushing the y/y rate up from 3.4% to 4.6% - a high since Sep ‘95. This development will serve to accentuate concerns within the MPC that the “inflation toothpaste” is now coming out of the tube with producers’ willingness to pass on their elevated input costs appearing to have shifted up a gear. Against this backdrop, while a June move is not yet beyond the realm of possibility, we continue to see the next cut being delivered in July.

CAD has been tightly range-bound (1.0052-1.0108) overnight. Only the March new housing price index is due today. The market expects a rise of 0.2%m/m. On a year-overyear basis, the index likely increased 6.1%, down from 6.3% in February and the 7.8% rate averaged in 2007. Though slowing, a 6.1% rate of house price appreciation is still relatively firm and easily outpaces the 1.4% CPI inflation rate seen in March.

EUR/USD rallied to 1.5489 on the back of general USD weakness, with EUR lacking independent direction after the neutral ECB statement yesterday.

AUD/USD initially fell on poor domestic data flow, though a subsequent bounces has seen losses reversed. Home loans fell 6.1%m/m and investment lending fell 7.2%m/m, after downward revisions to Feb figures. NAB Business confidence also fell to the lowest level since 2001 from -4 to -8, with Business conditions stable at 7 (lowest since 2002). The interest rate market has pared back its expectations for further RBA tightening in Aug from above 50% last week to sub 10%, with a full 25bps cut discounted within the next 12 months.

NZD/USD: Traded to a new 4 month low at 0.7635, before partially reversing losses in line with broad USD moves. New Zealand housing data was again very weak. April REINZ house sales fell to their lowest level in 16 years in April, house prices fell into negative territory for the first time since 2000 (-1.1%y/y) and is yet to show signs of bottoming, while the median number of days taken to sell a house was 44 from 40 in March and 28 days a year ago. Short NZD/USD at 0.7650 and to target a move to 0.6900 in coming months. Near term, NZD faces further downside risks in this Thursday’s Q1 NZ retail sales volumes (15 May) are expected to contract by 0.4%q/q, which will add to the likelihood of a flat, if not negative Q1 NZ GDP result on 26 June