Monday, Mar 10, 2008

Tuesday, Mar 11, 2008

Wednesday, Mar 12, 2008

Thursday, Mar 13, 2008

GMT	Ccy	Events	Consensus	Previous
23:30	AUD	Consumer Inflation Expectation (MAR)	–	12.70%
23:50	JPY	Foreign Buying Japan Stocks (yen) (MAR 7)	–	-77.4B
23:50	JPY	Foreign Buying Japan Bonds (yen) (MAR 7)	–	-387.4B
23:50	JPY	Japan Buying Foreign Stocks (yen) (MAR 7)	–	212.9B
23:50	JPY	Japan Buying Foreign Bonds (yen) (MAR 7)	–	567.7B
00:30	AUD	Employment Change (FEB)	15.0K	26.8K
00:30	AUD	Participation Rate (FEB)	65.20%	65.20%
00:30	AUD	Unemployment Rate (FEB)	4.20%	4.10%
04:00	JPY	Tokyo Condominium Sales (YoY) (FEB)	–	-19.10%
04:30	JPY	Industrial Production (MoM) (JAN F)	–	-2.00%
04:30	JPY	Industrial Production (YoY) (JAN F)	–	2.50%
04:30	JPY	Capacity Utilization (MoM) (JAN F)	–	1.70%
07:45	EUR	France Current Account (euros) (JAN)	–	-2.7B
07:45	EUR	France Non-Farm Payrolls (QoQ) (4Q F)	0.40%	0.40%
09:00	EUR	European Central Bank Publishes Monthly Report (MAR)	–	–
09:00	EUR	Italy Consumer Price Index (NIC incl. tobacco) (MoM) (FEB F)	0.30%	0.30%
09:00	EUR	Italy Consumer Price Index (NIC incl. tobacco) (YoY) (FEB F)	2.90%	2.90%
09:00	EUR	Italy Consumer Price Index - EU Harmonized (MoM) (FEB F)	0.10%	0.10%
09:00	EUR	Italy Consumer Price Index - EU Harmonized (YoY) (FEB F)	3.10%	3.10%
10:00	EUR	Germany’s LFW Institute Presents New Economic Growth Forecast	–	–
12:30	CAD	Capacity Utilization Rate (4Q)	82.10%	82.70%
12:30	USD	Import Price Index (MoM) (FEB)	0.80%	1.70%
12:30	USD	Import Price Index (YoY) (FEB)	–	13.70%
12:30	USD	Advance Retail Sales (FEB)	0.20%	0.30%
12:30	USD	Retail Sales Less Autos (FEB)	0.20%	0.30%
12:30	USD	Initial Jobless Claims (MAR	355K	351K
12:30	USD	Continuing Claims (MAR 1)	–	2831K
13:00	CHF	Swiss National Bank Rate Decision	2.75%	2.75%
14:00	USD	Business Inventories (JAN)	0.40%	0.60%
21:45	NZD	Manufacturing Activity (4Q)	–	-2.10%

Friday, Mar 14, 2008

Soaring Commodity Prices Bring Shift in Global Demand

In Europe and the US we are currently very preoccupied with the stagflationary tendencies resulting from the continued upward spiral in commodity and energy prices.

However, there is another effect of soaring commodity prices that must not be underestimated when considering the consequences for the global economy. For countries that export commodities and energy, rising commodity and energy prices are synonymous with rising real income. What we see in the global economy is not just higher inflation, but also a marked redistribution of purchasing power as expressed by movements in the terms of trade.

The Middle East, Africa, CIS countries and Latin America have seen massive improvements in their terms of trade at the expense of the EU, the US and Asia. To some extent this is also reflected in global demand. Take Japanese exports, for example. The EU and the US together are no longer contributing to Japanese export growth (see chart). While Asia is still making a healthy contribution, the big change is that the rest of the world is carrying more and more of the load. This group consists mainly of countries which have seen improvements in their terms of trade. In January these countries accounted for almost half of Japanese export growth.

The risk to these countries is, of course, that the global growth picture will deteriorate to the extent that questions will be asked about the high level of commodity prices, but we do not expect this to be a serious threat in the coming months. Read more about our views on commodities in our new report Commodity Monthly, the first edition of which was published during the week.

Euroland: ECB Concerns Rising - Both on Inflation and Growth

As expected ECB kept rates unchanged at 4% on Thursday. ECB continues to stress the upside risks to price stability but at the same time points to downside risks to growth. The staff projections also reflected this as the inflation projection was revised markedly higher to 2.9% in 2008 and interestingly to 2.1% for 2009 - so above the inflation objective even next year. This is based on assumptions that forward rates follow market expectations in mid-February when markets were pricing 100bp of cuts over the next year. Euroland growth was revised lower to 1.7% in 2007 and 1.8% in 2008 and risks are still stressed to be on the downside. So concerns are going up regarding both inflation and growth. Trichet increasingly refers to the euro and the strong dollar policy of US indicating some anxiety over the strengthening of the euro. This is revealing its increasing growth concerns as ECB should actually welcome a stronger euro from a pure inflation point of view. ECB wants to keep flexibility due to the very high uncertainty and does not want to send clear signals in any direction. In the Q&A Trichet stressed that it will not underwrite market expectations but added that it never does. We think ECB still overestimates the growth outlook and will cut rates eventually. Our base case is that the first cut will come in June, but it will depend on how fast growth slows down and the risk is skewed to a later cut.

As mentioned the euro is getting more attention as it continues to strengthen. This seems to go hand in hand with a rise in the oil price. From an inflation point of view it is positive that the euro strengthens when oil goes higher because it dampens the oil price rise measured in euro. But from a growth point of view it means one will get hit by both factors - as exports are hurt by the stronger euro and private consumption is slowed by the negative impact on real income from inflation.

Key events of the week ahead

• German exports out Monday. We may start to see the negative impact of a stronger euro and weaker external growth
• ZEW sentiment index released Tuesday. Is already very low and should be fairly unchanged
• Euro inflation for February out Thursday. Should be 3.2% as flash estimate showed. Focus on core inflation and any signs of second-round effects here

US: Consumers Under Siege

The economic slowdown in the US is no longer merely a housing story. In recent months US consumers have been under considerable pressure and recent data suggest that consumer spending almost stalled around New Year (see Research US - Consumers under siege). Next week we will get more information on the state of the consumer as retail sales for February will be released and we expect to see a continued subdued picture as the pressures on consumers continue.

Importantly, the slowdown in consumption spending is not only driven by declining house prices. A wholerange of negative factors, including high energy and food prices, a softer labour market, declining equity prices and tighter credit conditions have caught up with consumers. Consequently, the underlying pace of consumption has probably slowed to the 1-2% range. Generally, the uncertainty is currently very high and consumers might only be one major shock away from entering a period of protracted retrenchment. However, the most likely scenario is that consumption growth will trough in Q2 and rebound in Q3 as the fiscal stimulus packagekicks in and the pressure from energy prices eases off a bit. Despite the tax boost the effect from credit tightening, slowing house prices and a softer labour market is unlikely to dissipate fast. With underlying fundamentals for spending likely to remain soft, there will be a renewed period of widespread weakness in consumer spending around New Year 2008/2009 when the tax rebates lapse.

Overall the outlook is for a bumpy pattern in consumer spending during the next 4-6 quarters. While we do not expect consumer spending to slide into a period of sustained contraction, the situation is set to remain unusually fragile for a prolonged period. US households are not likely to enter shallow waters before mid-2009. Further, the risks remain asymmetric to the downside as a more protracted slowing in the labour market, a sharp decline in asset prices or a sharper credit slowdown could generate a deeper and more sustained slowdown in consumer spending.

Key events of the week ahead

• Thursday: Retail sales ex autos are expected to rise 0.2%
• Friday: CPI is expected to rise 0.3% m/m on the headline and core CPI is expected to rise 0.2% m/m. Headline inflation will stay above 4%.
• Friday: Consumer confidence from University of Michigan probably stays at the current low level.

Asia: Muto Nominated for Governorship of Bank of Japan

As expected, the Bank of Japan (BoJ) left its key rate unchanged at the monetary policy meeting on Friday, and it did not put out any significant new signals. If everything goes to plan, it was also the last monetary policy meeting to be chaired by current governor, Toshihiko Fukui, who will formally step down on 19 March. The Japanese government has now finally nominated current deputy governor, Toshiro Muto, as his successor. However, this has been done without reaching agreement with the opposition on his candidacy, and so we cannot rule out the possibility of his appointment being blocked and the Japanese government ending up in the extraordinary situation of having to temporarily reinstate Fukui.

Japan’s Q4 GDP growth is set to be adjusted sharply downwards in the first revised estimate due out in the coming week. In concrete terms, we expect Q4 growth to be cut to 0.5% q/q from 0.9% q/q in the preliminary estimate. This sharp downward revision is because the finance ministry published very weak figures for business investment in Q4 during the week. According to these figures, business investment in machinery and equipment fell by 7.3% y/y. We have already expressed some scepticism about the very high GDP growth in the original estimate, as it is difficult to reconcile this with the clear slowdown in the Japanese labour market at the end of 2007. However, the downward revision in itself will not mean anything for monetary policy in Japan. Growth was slightly above potential growth in Q4 and will probably fall to slightly below potential growth in Q1, which means that the BoJ will stay on hold for now.

In China, the National People’s Congress is in full swing. Prime minister, Wen Jiabao, signalled in his address that fighting inflation has top priority, and that the ambitious plans to control credit growth stand. The government has announced quarterly credit quotas in a bid to bring credit growth down significantly during the course of 2008 (see chart). There had otherwise been speculation that the Chinese government would ease back slightly on its ambitions in the light of the uncertainty about the global economy and the chaos in the wake of the recent snowstorms. If the Chinese government does stick to its tough targets for credit, this could hit investment hard in the coming months.

Key events of the week ahead

• Revised Japanese GDP figures for Q4 are due on Thursday. We expect a sharp downward revision (see above).
• It will be interesting to see what happens in terms of the Japanese government’s nomination of Toshiro Muto for the BoJ governorship.
• In China, the National People’s Congress is ongoing, and a new government is expected to be appointed during the week.

Foreign Exchange: Is the Decline in USD Disorderly?

The newsflow makes for scary reading these days. The crisis in the financial markets appears to be escalating again, and the past week has witnessed falling equity prices, ditto bond yields, rising credit spreads and a general increase in risk premiums. Several markets are now in their worst position for the past year despite the not insignificant efforts of the central banks. The economic front looks none too rosy either. In the US, the benchmark ISM industry index fell below 50, and housing foreclosures rose to their highest level ever (data since 1985).

The fallout on the FX market is mostly as could have been predicted. EUR/USD has risen sharply during the week, hitting new highs above 1.54. Only two currencies have performed better than EUR, and they are CHF and NOK. The list of currencies that have performed worse is long, and topped by ZAR, TRY, KRW and ISK. Our three-month target for EUR/USD of 1.55 risks coming into play faster than we expected (see FX forecast update). Indeed the speed with which the dollar is falling at the moment suggests a certain degree of panic. Back in November we outlined the circumstances under which the decline in the dollar could become disorderly (see Will the decline in USD become disorderly?). At the time, we concluded that the outlook for the US economy, a deterioration of the financial crisis and a declining tendency to use USD as a reserve currency added up to further falls in USD. All three arguments still appear valid, which is why we still do not believe that EUR/USD has peaked. It also seems premature to believe in intervention from the G3 central banks. At the ECB, monetary policy is still directed to fighting inflationary pressures, while in the US it is attempting to stimulate the economy. So long as this situation continues, the central banks cannot sell EUR/USD. Japan, too, would find it difficult to intervene as long as JPY is generally undervalued. As before, our view is that both an economic slowdown and a financial crisis will benefit currencies such as EUR, JPY and CHF, whereas we expect that carry strategies will continue to underperform.

There will be a monetary policy meeting in Switzerland on Thursday, when we expect that the SNB will keep rates unchanged at 2.75%. In may ways the SNB finds itself in the same dilemma as the ECB, as economic growth is on the wane, while inflation is running above the official target. Compared to Euroland, however, the slowdown in growth is less pronounced, while underlying inflation is lower. For now we expect just one rate cut from the SNB this year, compared to three from the ECB. Combined with continuing financial turmoil, we expect CHF to strengthen further in the coming year to 1.54 against EUR.

Norway’s central bank will also be meeting on Thursday. We expect unchanged rates, but the rhetoric will be skewed towards an interest rate hike in May given rising inflation and solid domestic growth. The former will presumably be confirmed on Monday, with the release of consumer and producer prices for February. The fall in EUR/NOK in the past week is impressive given that risk aversion has increased generally, and we expect to see further NOK strength going forward.

Commodities: Precious Metal Passion - Could Gold Hit USD 1200?

Precious metal prices have risen sharply in the past two months. Minor metals, platinum and palladium, in particular, have soared, with palladium rising more than 55% and platinum up around 38%. Platinum is the more important of the two, and the main reason for the surge in prices is major problems at the South African mines, which account for 78% of the world’s platinum production. The problem is basically that the mines are suffering power shortages, and this is hitting operations. The state-owned electricity supplier, ESKOM, announced in the middle of February that mines and other industrial users could only have 90% of their normal electricity consumption supplied until 2012. The reason for such a drastic measure is a massive lack of investment in electricity-generating capacity over many years in an economy that has otherwise been booming. The mining companies have already announced lower production this year. Anglo Platinum, the largest South African producer, has announced that production will fall by 6% this year. Palladium, a less important metal, has also been hit by the problems in South Africa, which accounts for 39% of global production. Prices have risen on the back of expectations that palladium will increasingly act as a substitute for platinum. While the price of these two minor precious metals has rocketed in recent months, it is certainly possible that prices will increase even further if the problems in South Africa remain unresolved and investors continue to show great interest in commodities - as outlined below.

Prices on the precious metal "majors", gold and silver, have also surged this year, despite underlying physical demand being hit by the rising prices. Gold jewellery demand fell 17% in Q4 07, according to the producer organisation, the World Gold Council.

In our view, gold and silver prices have primarily been boosted by rising inflation and inflation fears, together with the weakening of the dollar. The combination of these factors in an environment where equities and credit products are under pressure, has prompted investors to take a serious look at alternatives, and gold has traditionally performed well in such situations. Gold is, in principle, the counterpart to the dollar, and is viewed as a hedge against inflation and the ultimate safe haven at a time when the US economy is close to meltdown. The US central bank signalling lower rates, apparently not focused on inflation, and explicitly warning that a number of smaller US banks risk going out of business, adds up to just about the best recommendation gold can have.

As we write in the "Foreign exchange" section of this week’s Weekly Focus, we are considering revising our FX forecast in the direction of an even weaker dollar. Meanwhile, we expect that the US Fed funds rate will fall to 2% or perhaps even lower as the US economy continues to struggle. We therefore expect that gold will break through the magical $1,000 per troy ounce mark, and that the peak may be as high as $1,200 in 2008. We also expect silver prices to rise, but not to the same extent. In a tumultuous situation such as the present, the only thing that sparkles for investors is gold.

Full Report in PDF

Danske Bank
http://www.danskebank.com/danskeresearch

Disclaimer

This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets’ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

10-Mar

UK PPI Input (MoM) (FEB) (09:30 GMT; 05:30 EDT)
Expected: 1.6%
Previous: 2.6%

UK PPI Output (MoM) (FEB) (09:30 GMT; 05:30 EDT)
Expected: 0.6%
Previous: 1.0%

What Are The Markets Facing?

Given the rapid gains in oil and other commodity prices, there are well-warranted concerns that global inflation will rise significantly. The prospect of increased price pressures only compounds the problems that the Bank of England already faces as they contend with mounting downside risks to growth and uncertainty surrounding the ongoing reappraisal of risk in the financial markets. Despite the fact that credit market conditions are still tight, Bank of England Governor Mervyn King and his Monetary Policy Committee decided to leave rates steady at 5.25 percent on March 6. However, with no monetary policy statement released when there is no change to the overnight lending rate, the markets will have to wait until March 19 for the issuance of the meeting minutes in order to get a better sense of the BOE’s bias. Nevertheless, it is fair to say that inflation was probably their predominant concern after crude oil futures on the New York Mercantile Exchange rallied throughout the week to ultimately hit a record high of $106.54/bbl on Friday. This conundrum may be highlighted next week as UK input and output cost growth is forecasted to continue and could be a but stronger than current estimates. According to a Bloomberg News poll of economists, the consensus reflects expectations for a 1.6 percent gain in producer input costs and a 0.6 percent rise in producer output prices. Such readings would not only suggests that broad inflation pressures are mounting, but also that companies are feeling the squeeze on their profit margins as they are unable to pass through the increased costs to their customers. The news will set the stage for the release of CPI the following week, which may show that consumer price growth accelerated faster than the Bank of England’s 2.0 percent target once again, but with the downside risks to the economy still of major concern to the MPC, it may not prevent the central bank from cutting rates again in the near-term.

Bonds - 10-Year Long Gilt Futures

Despite a sharp pullback from the 112.03 high on Friday, Gilts remain in a clear uptrend and may be targeting the January 22 high of 112.57. Risk aversion trends remain the primary driver of price action for Gilts, but traders should keep an eye on Monday’s PPI data, as signs that inflation pressures are building significantly will lead the markets to judge that the BOE will leave rates unchanged again in April. As a result, Gilts could hold below the 112 level for now.

FX - GBP/USD

The combination of a broadly weak US dollar and the Bank of England’s decision to leave rates unchanged at 5.25 percent on March 6 allowed the GBP/USD pair to surge through the 2.00 level to hit a more than two month high of 2.0215 on Friday. However, resistance from the 200 SMA at 2.0131 and the psychologically important 2.02 level has kept the pair from surging significantly higher. Upcoming economic data out of the UK could shake the pair up, as producer price figures may suggest that inflation pressures continue to build, which may force the BOE to leave rates steady at 5.25 percent again in April. As a result, if the PPI input and output numbers are stronger than expected, GBP/USD could push above resistance to ultimately target the 61.8 percent fib of the decline from 2.1162 - 1.9338 at 2.0461. On the other hand, surprisingly soft data could help weigh GBP/USD down to return to the 2.00 level.

Equities - FTSE 100 Index

The FTSE 100 has run into support near 5,700, though the general trend for the index remains to the downside as the financial markets remain on edge. Monday’s UK event risk could tip the index even lower, as rising producer price inflation will put additional pressure on the UK economy. Indeed, deteriorating conditions in the UK have already forced the Bank of England to reduce interest rates by 25bp in December and once again in February. Counter to what some believe, the rate cuts have done little to help boost shares in the UK - as the Federal Reserve rate cuts have not helped US equities - and with the Bank of England remaining open to additional reductions in the overnight lending rate, the FTSE 100 may have far lower to fall.

DailyFX

Disclaimer

Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

• Canadian Employment at Record Highs but Risk Aversion Hits the Commodity Currencies
• Euro Hits a Record High but Retreats

Federal Reserve Is On High Alert

Non-farm payrolls dropped for the second month in a row but interestingly enough, that was not the biggest story of the day. Instead, the Federal Reserve is on high alert, having announced plans to pump 200 billion dollars into the banking system to "address liquidity pressures in the funding markets.” Although they denied that this was related to the weak jobs report, the timing is certainly suspect. The announcement may have been aimed at preventing a non-farm payrolls induced collapse in the stock market, which worked for about an hour before stocks completely reversed all of its gains. Whether this is true or not, the one thing that is certain is the fact that the Federal Reserve is very worried about the current state of the US economy and the financial markets. Today’s payroll numbers tell us that the US economy is already in a recession and it will just be a matter of time before retail sales turn negative as well. The only reason why the unemployment rate dropped was because prospective employees were so discouraged about the outlook of the labor market that they simply gave up. This seals the fate for the Fed rate decision in less than 2 weeks - they will have no choice but to cut interest rates by 75bp. In the coming months, we expect the labor market to worsen which will force the Fed to bring interest rates down to as low as 1.50 percent. Two back to back months of job losses is still nothing compared to the 15 consecutive months of negative job losses between 2001 and 2002. In our non-farm payrolls preview, we said that as much as 100k jobs could have been cut from US payrolls last month. If your strip out the contribution of government jobs to the February report, the private sector actually reported a net job loss of -101k. Retail sales are the big event risk for the US dollar next week. 4k jobs were cut from the retail sector and according to Wall Street Journal, sales at most retailers other than discounters have been weak. With gas prices skyrocketing, foreclosures hitting a record high, the labor market weakening and confidence at a record low, discretionary spending may be the last things on the consumer’s mind. In addition to retail sales, we are also expecting the trade balance and consumer price report. Both numbers should be dollar positive because the weakness of the greenback should help to improve the trade deficit while record high commodity prices will boost inflation.

Canadian Employment at Record Highs but Risk Aversion Hits the Commodity Currencies

The US government should be envying Canada, its northern neighbor who reported stunning job growth in the month of February. The market was forecasting an increase of only 3k jobs, but to their surprise, 43k new jobs were added to Canadian payrolls, keeping the unemployment rate at a 33 year low of 5.8 percent. The increase in jobs was concentrated in the Ontario region and in the construction, public administration, service and trade sectors. Wages were also very strong with a 4.9 percent increase in the average hourly rate, more than double the rate of inflation. Although this did lead to significant strength in the Canadian dollar, weak US job growth erased those gains on the fear that slower US growth will spillover to the Canadian economy. This is a significant possibility, but we believe that the strength of the Canadian data should lead to a further rally in the loonie in the coming week. The only piece of economic data scheduled for release from Canada is the trade balance, which we expect to be firm. Meanwhile Australia will be releasing employment numbers while New Zealand will be reporting retail sales. This set of data will be market moving for both currencies.

Euro Hits a Record High but Retreats

The Euro hit a record high of 1.5463 after the US non-farm payrolls report but it ended up retreating almost instantaneously as carry trades came under pressure and news that the Federal Reserve expanded their lending hit the markets minutes after the NFP report. Eurozone economic data continues to be firm with German industrial production rising more than expected. Unlike the Federal Reserve, the ECB is not particularly worried about the liquidity pressures in the financial markets. Instead, ECB member Weber warned that the markets are underestimating inflation risk. With coffee, corn, rice and other food prices hitting significant highs, we believe that he is 100 percent right. In the week ahead, the two most important releases out of the Eurozone will be the German trade balance and the ZEW survey. Although economic data suggest that analyst sentiment should improve, this group of critics always tend to lean towards pessimism. Meanwhile the Swiss National Bank has a monetary policy meeting next week. Interest rates are not expected to be changed.

British Pound Hits YTD Against US Dollar

Despite the lack of any UK economic data, the British pound soared to a year to date high against the US dollar. This price action is very interesting because the British pound also rallied against the Euro which should have been supported by the stronger Eurozone economic data. This may be due to the fact that higher inflation numbers are expected from the UK Monday morning. PPI should be hot given the rise in food and energy prices. Later in the week we are expecting the UK trade balance which should also be improving.

US Dollar Falls to 8 Year Low Against the Yen

Even though many of the Japanese Yen crosses ended the day unchanged, there was a significant amount of intraday volatility. USD/JPY hit an 8 year low of 101.42 before rallying to an intraday high of 103.24. This was largely due to the big swings in the stock market which led to big reversal candles in all of the Yen crosses. The Bank of Japan kept interest rates unchanged at 0.50 percent while the BoJ monthly report said that even though the economy is still expanding, the pace of growth is moderating.

DailyFX

Disclaimer

Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

The US government should be envying Canada, its northern neighbor who reported stunning job growth in the month of February.

The market was forecasting an increase of only 3k jobs, but to their surprise, 43k new jobs were added to Canadian payrolls, keeping the unemployment rate at a 33 year low of 5.8 percent. The increase in jobs was concentrated in the Ontario region and in the construction, public administration, service and trade sectors. Wages were also very strong with a 4.9 percent increase in the average hourly rate, more than double the rate of inflation. Although this did lead to significant strength in the Canadian dollar, weak US job growth erased those gains on the fear that slower US growth will spillover to the Canadian economy. This is a significant possibility, but we believe that the strength of the Canadian data should lead to a further rally in the loonie in the coming week. The only piece of economic data scheduled for release from Canada is the trade balance, which we expect to be firm. Meanwhile Australia will be releasing employment numbers while New Zealand will be reporting retail sales. This set of data will be market moving for both currencies.

Canada’s labour market wowed forecasters again with the economy producing another whopping 43,300 new jobs in February, well above the consensus forecast for a marginal 3,000 job gain. The unemployment rate held at the 33-year low of 5.8%. Wages for permanent employees rose 0.2% in February and were 4.7% higher than a year earlier.

The split between full-time and part-time employment was a replay of the January report with the gain concentrated in full-time jobs, which rose 49,500 in February, while part-time employment fell 6,200. Goods-producing industries cut 12,500 jobs, partially reversing January’s 44,100 gain. Construction employment rose by a healthy 20,800.

The service sector created 55,800 new positions. The largest job gains in the services sector were in transportation/warehousing (up 14,100), professional/scientific services (up 15,600), information and cultural industries (up 12,200) and public administration (up 15,800). Manufacturers shed 23,700 positions, more than offsetting the unexpected 17,500 increase in January.

The average hourly wage rate for permanent workers (the Bank of Canada’s favoured measure) rose 0.2% in January, while the year-over-year rate moderated slightly to 4.7% after holding at 4.9% in December and January, which was the fastest pace of increase on records back to 1997.

The strength in the labour market in the fourth quarter resulted in labour income rising at a 7.3% annualized pace, which supported the fastest rise in consumer spending in more than 22 years.

The pace of job gains picked up pace in January-February to 45,000 new positions per month from the 30,000 monthly pace in 2007 and will support labour income growth providing solid support for the consumer this year.

The main risk to the outlook for the consumer comes from the volatility in financial markets and rising credit spreads, which are boosting borrowing costs for Canadian households.

For the economy as a whole, the trade sector remains the biggest risk to the outlook as the weaker U.S. economy and high currency limit export growth, while the strong domestic economy keeps import demand growing. The heavy drag from trade on the pace of GDP growth and tightening in credit conditions will keep the Bank of Canada on an easing path. We look for two 25 basis point rate cuts to be delivered in the months ahead.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.