Tuesday June 8, 2004 - 13:11:05 GMT
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Forex Strategy Session Dollar at NY open
The dollar is mixed to lower at the opening of trade Tuesday in North America. We sense that the unplanned closure of U.S. markets has disrupted the rhythm of the markets this week, as U.S. data planned for that session will have to be released later or on a holiday, which would be very unusual.
The immediate focus today is the 13:00 GMT monetary policy decision by the Bank of Canada. No change in rates is likely, although the statement by the central bank could be interesting as it could include some clues as to the future course of policy now that many in the markets are looking for a rate hike later in the year. The Canadian dollar remains exceptionally strong. 13:15 GMT sees the participation of FRB Chairman Greenspan by satellite in a central Banker panel at International Monetary Conference in London. We doubt if he will have much new to say on the current course of monetary policy in the U.S., but his appearances are always noteworthy.
German unemployment rose for the fifth month in a row in May, The seasonally adjusted number of unemployed increased by 9,000 in the month and the unemployment rate was 10.5%. The markets shrugged this news off and focused on the stronger than expected German April Industrial Output figure, which grew by +2.2% in the month. The euro appears to be the recipient of flows out of the yen and Asia today. In the U.K., the May Halifax Home price survey registered a gain of +2.2% from April. Prices were also up 20.4% yr/yr. These data reinforce the case for a 25bp rates hike by the Bank of England on Thursday.
In Japan, the Nikkei advanced again on Tuesday as the markets continue to anticipate a strong economic performance. Local talk now is that the $/yen is headed for 108 by mid-year and back to the 100 line by yearend as Asian central banks continue to cautiously diversify their forex holdings out of dollars. On the other hand, the Ministry of Finance was happy with $/yen in a 110-115 trading range. We do not know what steps they might take, if any, to make that happen. A key focus for Wednesday will be revisions to the preliminary 1Q04 GDP figure. The initial data showed a strong +1.4% q/q rise. Japanese Government Bond prices have been weak recently as the economy has recovered. The yield on the 10-yr JGB has risen by about 30bps in the past quarter, and today closed at 1.70%.
Concern about Australian exposure to a potential slowdown in demand from China seems to be abating and the currency has seen its tone improve in response to stability in many commodity prices. Also Housing Finance data due on Wednesday are expected to have fallen by 1.5% in April, suggesting that the economy is now better balanced. If the data are unexpectedly strong, the risk for another hike in the cash rate will have to be considered.
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