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Video for August 19th, 2008 (5 min): Dollar Feels Pressure From Housing and Inflation Data, Wall Street and Oil NZ Producer Prices Above Expectations 2nd Quarter In New Zealand producer prices surged in the 2nd quarter. Output prices were up 3.5%, the highest since 1985, and input prices rose 5.6%. Electricity generation was the main culprit, along with higher prices for fuel. AUS RBA Minutes Reiterate Policy Members Ready to Cut Rates Australia's meeting minutes gave more detail into the thinking of policy makers, though the main point remains. Domestic demand has clearly deteriorated, and the scope to move to a "less restrictive" monetary policy is increasing. AUD/NZD - Kiwi Continues Gains on Aussie, Hits 1.2180
The Aussie-Kiwi pair continued its fall that has seen this pair drop from 1.30 to 1.22 in the last month. Traders are pricing in future interest rate cuts by the Reserve bank of Australia, while higher than expected inflation from New Zealand means their central bank may have to slow the pace of their cutting campaign. After setting a high near 1.2290 overnight, the Kiwi gained 100 pips to test 1.2180. JPN BOJ Holds Rates, Growth Sluggish The bank of Japan kept rates at 0.50% and said that economic growth has been sluggish against the backdrop of high prices for energy and materials and weaker growth in exports. EUR/JPY - Euro Recovers Earlier Losses to Yen
European stocks were down overnight, led lower by financials. Investors are again concerned about further write-downs as a result of credit market woes. Carry trade pairs such as the Euro-Yen and Pound-Yen fell in favor of the Yen. The Euro slid to test 160.90, capping a 4-session decline. However NY trading saw a rebound in the Euro's fortune, as it rallied 120 pips to 162.25. GER Producer Prices Surge in July, Up 8.9% on the Year In fundamental news, German producer prices accelerated at a fast pace in July, far above expectations. Prices on the month were up 2.0%, and on the year, prices rose 8.9% setting a new 27-year high. The data will add pressure for the ECB to hold rates at 4.25%, a seven-year high, even as the economy hits a period of serious slowdown in the 3rd quarter. GER ZEW Economic Sentiment Improves More Than Expected German investor confidence improved more than expected for the August period, rising to -55.5 from -63.9 in July. The increase in sentiment was led by falling oil prices and a slide in the Euro which will make European goods less expensive abroad, helping exports. The Euro-zone as whole saw similar improvement. US Housing Starts and Building Permits Slide in July Just when the US housing market was showing some signs of recovery, the fundamentals headed back south. Housing starts quickly fell after seeing some gains in June. The annual pace of new housing construction fell to 965,000, the lowest level since March of 1991. New construction building permits dropped 17.7% in the month to an annual rate of 937,000 units. US Producer Prices Surge to 9.8% Annual Rate US producer prices for July came in red hot, jumping to an annual pace of 9.8%, the highest in 27 years. Prices rose 1.2% on the month, and both figures were above expectations. Core prices in both monthly and annual terms were also elevated, which means inflation is seeping into the underlying economy and not just volatile items like energy and food. EUR/USD - Dollar Slides as Housing, Inflation Data, and Rising Oil Batter Stocks
The Euro-Dollar pair hit a fresh 6-month low overnight near 1.4630, as European stocks suffered, but rebounded following the European data. In NY trading, signs of weak housing and high inflation soured the mood on Wall Street with the Dow index falling by triple digits. Oil was up as well. That combination of news bodes ill for the Dollar. After a move down to 1.4650 in the aftermath of the US PPI data, the pair climbed 140 pips to test 1.4790. CAN Wholesale Sales Jump 2% In Canada, wholesale sales rose 2% in June, four times higher than forecasts. It was the 5th increase in 6 months and were propelled by strong gains in motor vehicle sales. USD/CAD - Loonie Gains After Sales Data and Weakness in Greenback
The US Dollar-Canadian Dollar, which we noticed yesterday was in a downward channel, fell after testing the new line of resistance. The greenback was pressured in morning trading as US stocks fell. Upcoming Releases Tonight, Japan posts its all industries activity index and Australia reveals its leading index. Overnight, the UK will release meeting minutes, and data on money supply and manufacturing. Tomorrow, Canada posts data on retail sales and its leading index. |
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