Expert Analysis of Today's Market

• The dollar was modestly higher against most key currencies on Thursday after Philadelphia Fed’s manufacturing index rose more than expected. The carry-trade theme continues, supported by large interest rate differentials and risk appetites. The New Zealand dollar touched the strongest level against the yen and the greenback since the NZ dollar was traded freely in March 1985 powered by carry-trades despite the Reserve Bank of New Zealand’s attempt to stem the Kiwi’s rise. The Canadian dollar declined as retail sales rose less than expected. Ontario Finance Minister Greg Sorbara, saying a strong Canadian dollar is hurting manufacturers, urged the Bank of Canada not to hike interest rates further.


• The USD/CAD broke its steep downward sloping trading channel. The pair fell to a 30-year low on June 4. Economic reports have missed expectation and speculators are still short the pair. We expect a strong USD/CAD rally and may buy more.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims rose a stronger-than-expected 10K last week to 324K, the highest level in nearly two months. The 4-week moving average of initial jobless claims rose for the fourth consecutive week to nearly 315K from 312K the prior week, the Labor Department said. The data may indicate some downside risk to June’s payrolls number.


• The Conference Board’s index of leading economic indicators rose 0.3% in May. Five of the components provided gains, 3 fell and 2 were unchanged. Both the coincident and lagging indices rose 0.2%. The May gain offset April’s revised 0.3% decline. This indicates the US economy should expand modestly in coming months.


• The Philadelphia Fed’s index of regional manufacturing jumped 14 points to a strong 18.0 in June, the fastest pace in more than two years as orders surged. This is a clear sign that manufacturing activity is rebounding in the area. This also bodes well for the ISM nationwide manufacturing index and the industrial sector which continues to rebuild momentum.


• Canadian retail sales rose a less-than-expected 0.4% m/m in April following a 1.8% m/m rise in March, Statistics Canada reported. Excluding automobiles, there was no sales growth in April following March’s 1.1% m/m rise.

Europe

• Royal Bank of Scotland Group Plc’s European PMI index for the combined service and manufacturing sectors rose to a stronger-than-forecast 57.7 in June from 56.8 in May. This indicates strong continued growth for the EMU region. The gauge of services rose to 58.3 in June from 57.3 in May, and the manufacturing index rose to 55.4 from 55.

• Japan’s trade surplus widened 9.3% to ¥389.5 billion ($3.15 billion) in May from ¥356.3 billion a year earlier, up for the seventh consecutive month, the Ministry of Finance said. Exports increased 15.1% y/y while imports rose 15.5% y/y in May.


• People’s Bank of China Deputy Governor Wu Xiaoling said the world must be patient over the pace of the nation’s economic-policy changes as China moves toward a demand-driven exchange rate.

FX Strategy Update