Leading Indicator Gains, For Second Month in a Row, Boost Dollar

The US dollar is higher against currencies like the Euro, Swiss franc, British pound and the Japanese yen Monday.

US Conference Board’s index of leading economic indicators rose by 0.1% in April to a reading of 102.0, matching the gain seen in March, and was in line with expectations. This private research group even said that even though the data certainly reflects a weak economy, it does not reflect one that’s in recession, and also noted that the small gains in the leading index for both March and April could be a signal that the economy may not weaken further. March’s gain was the first gain since September last year.

A broad US economic recovery depends largely on the housing market, and if this sector doesn’t improve by the end of this year, it would continue to put a drag on growth. Billionaire investor Warren Buffett said today that the housing market “may get worse.”

Different Fates For Aussie and Kiwi Dollar

The Australian dollar reached a fresh 24-year high of 0.9570 against the US dollar Monday on rising demand for commodities such as gold. Gold, which is Australia’s third-most valuable export, gained 1.6% to $899.90 an ounce last week, boosting the coffers of gold exporters and the Aussie government. The New Zealand dollar didn’t share the good fortune of the Aussie though. Since two months ago, NZD/USD has been sliding steadily even as commodities have gone higher, on speculation that the New Zealand central bank may have to cut its main interest rates aggressively from its current 8.25% as NZ home sales fell to a 16-year low in April and employment fell the most since 1989.

ECB Says

European Central Bank’s chief Trichet said today that problems relating to the credit crunch are not yet over, and warned about the need to contain inflation. He said, “It is an ongoing, very significant market correction.” ECB’s Kranjec said that the ECB decision to keep interest rates unchanged at 4% was the correct one, and that data shows that European economic fundamentals are strong.

Forex Trading

USD/CHF fell to 1.0415, but then bounced almost 100 pips to 1.0510. As mentioned earlier, dollar strength could continue if USD/CHF can hold above 1.0390-1.0400, but if this support gives way, USD/CHF could target 1.0360, 1.0310.

EUR/USD went up to 1.5635, but remains capped by resistance around 1.5650. Its nearest support is around 1.5500-20. Tuesday’s release of the ZEW economic sentiment for May will be a potential market mover for the Euro. Before that happens, it is expected to trade in a narrow range.

The British pound went up to 1.9625 against the US dollar Monday, but later gave up its gains, falling below 1.9500 after the Bank of England said last week that a UK recession cannot be ruled out.

Comments

[David Lentz]

I'll accept that the USD is appreciating relative to other currencies, but don't the rising commodities prices (pretty much across the board) indicate that what is happening is that the USD is (possibly temporarily) depreciating slower than the non-US currencies, and practically all currencies are in a state of depreciation, with demand contracting from the consumer segment of nearly all national economies?

If that is indeed the case, it would seem that a commodity-based approach would prove superior (for the duration of the recession) to any stock or equity-based approach, and certainly better than juggling currencies?