February 4th, 2012 at 1:33 pm
The quiet in currencies before Friday was well deserved. Market participants stood aside before jobs report late in the week. Probably a right decision for most, given what happened on Friday. Volatility in currencies increased dramatically, with the Canadian Dollar among those affected the most. The North American session started with labor numbers from Canada, which were surprising once again. The Unemployment Rate increased to 7.6%, above the prediction of remaining flat at 7.5%. At the same time, the Net Change in Employment showed 2.3K new jobs, far below the forecast of 23.1K. In response, the USD-CAD became weaker across the board, including the USD-CAD.
This state of affairs did not last long, however, only until the NFP Report. The Nonfarm Payrolls brought another surprise for the day, showing an increase of 243K jobs in January, handily beating the forecast of 150K. It also bested December’s revised 203K growth and was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3%, the lowest since February 2009. Late in the day, the ISM Non-Manufacturing index delivered yet another surprising result, coming at 56.8. To put in perspective, analysts expected a reading of 53.1 and previous one was at 52.6. The good news proved damaging to the US Dollar, though, as if it was losing its safe haven status when American economy shows signs of improvement. In case of the USD-CAD, it dropped sharply, deep under the parity level, making it one of the most eventful days for this pair in a long time.
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January 30th, 2012 at 4:40 pm
The Japanese Yen received a lot press recently and this time it was not because of intervention or a threat of one. After three consecutive months of running a trade deficit, the Japan posted a gap of JPY 2.49 trillion for 2011. Unfamiliar territory for this country, which had a surplus every year since 1980. This was immediately blamed on the earthquake earlier in the year, which raised fuel imports while decreasing domestic production. As a result, only four of Japan’s nuclear power plants are in operation, meaning that country must purchase fossil fuels abroad in order to cover the energy cap.
Many think it is not a temporary situation and Japan will find itself in trade deficit for years to come. With multinationals opening more factories abroad than they are at home, domestic production is not expected to increase either. These are strong fundamentals working against the Yen. There is more – continues account deficit would spell trouble because it would mean the country cannot finance its huge public debt without overseas funds. Currently Japanese investors hold about 95 % of Japan’s government bonds, which lends some stability to an otherwise unsustainable debt burden. Once starts raising money abroad on larger scale, many believe the Yen will suffer.
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January 29th, 2012 at 8:37 am
Interesting proposal from Germany on how to handle the Greek crisis surfaced late last week. It is rather simple – Greece would give up control over its tax and spending decisions. A new “budget commissioner”, appointed by the Eurozone, would have the power to veto Greek budget decisions. Under this plan, paying off creditors would be priority one for Athens, coming before any domestic spending. In short, somebody else would be deciding how Greek government is allowed to run its country from the financial perspective.
No official comments yet, but it is hard to imagine this particular proposal to be received friendly in Athens. They already have to contend with another set of demands that must be met before the next installment of bailout is released. They include cuts in healthcare and defense spending, commitment to eliminate another 150K government jobs in three years and scores of other painful steps. All of this is piling up when even talks with creditors on debt swap are not fully concluded. Forcing Greece to accept all of these measures could easily push this country out of the Eurozone and perhaps even EU. Other members could realize they might be next, which would endanger entire structure of the European Union.
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