Thursday, 10 March 2011

Dollar Soars as Stocks Slump on Oil Rebound

The US Dollar outperformed in overnight trade, rising 0.6 percent against its top counterparts as stocks slumped in Asian trade, boosting demand for the safety-linked currency. The MSCI Asia Pacific regional benchmark equity index slumped 1 percent as crude oil prices resumed their advance amid escalating violence in Libya, with government forces launching a fresh round of air and artillery strikes as well as offering a $407,000 reward to anyone who arrests the head of the rebel leadership. The WTI crude oilcontract added as much as 0.5% percent overnight.
The Australian Dollar underperformed, bearing the brunt of risk aversion as disappointing economic data compounded pressure on the risk-sensitive currency. Prices slumped as much as 0.6 percent asChina’s Trade Balance unexpectedly slipped into deficit as export growth slumped to the slowest in 15 months while February’s Australian Employment report showed the economy unexpectedly shed 10.1K jobs in February, marking the first decline since August 2009.
China – itself an export-geared economy – is Australia’s largest trading partner; a drop in its exports foreshadows a decline in its own demand for Australian raw materials (notably coal and iron ore). Indeed, imports from Australia dropped to the lowest in 10 months ($4.5 billion) in February while overall inbound shipments added grew at an annual pace of 19.4 percent, the slowest since October 2009.
The Reserve Bank of New Zealand cut interest rates by 50 basis points to bring the benchmark lending rate to 2.5 percent. Economists and traders alike had expected a 25bps reduction. The New Zealand Dollar took the announcement relatively well however as RBNZ Governor Alan Bollard said current monetary policy accommodation will be removed as rebuilding efforts following the Christchurch earthquake boost growth by 2012, labeling today’s move “pre-emptive”. On balance, the central bank seems to be signaling that no further easing ought to be expected, with markets now pricing in a return to rates at 3 percent within 12 months.

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