Economic Surprises Keep Dollar Bid

Includes: FXB, FXC, FXE, FXY, UDN, UUP
by: Marc Chandler

Unexpectedly firm producer prices and a smaller than expected Q1 current account deficit helped the U.S. dollar extend gains recorded in Asia and Europe.

U.S. producer prices rose for the first time in 3-months and the 0.5% headline increase contrasts with market expectations for a 0.1% increase and the sharper than expected decline in import prices reported yesterday. Excluding food and energy, producer prices rose 0.1%. This partly picked up the 0.4% increase in light truck prices. Consumer prices will be reported next week and are also expected to record their first increase in 3-month.

The U.S. current account deficit in Q1 stood at $106.1 bln, about 5% smaller than expected and the Q4 gaps was revised to $107.3 bln from $110.4 bln. Taken together these two quarters are the smallest 6-month deficit since H2 2010.

Of note, foreign investors stepped up their purchases of U.S. assets to $295.5 bln from $242.5 bln in Q4. Americans, for their part, dramatically stepped up their purchases of foreign assets to $218.5 from $116.0 bln in Q4. A good part of the increase in U.S. purchases can likely be traced to 1) Japanese equities and 2) European bond, as those who track benchmark indices were forced to buy peripheral bonds or risk under-performance.

On the news the euro slipped to new lows for the day, but held above the $1.3280 area that marked yesterday's lows and the upper end of a band of support that extends to $!.3260. A partial recovery ahead of the weekend still looks technically likely. Sterling, although trading heavier than the euro today, did not make a new low in response to the data and held $1.5620. It too looks as poised to pare some of the losses. A move above $1.5660 now would help lift the tone. Meanwhile, the dollar is flat against the yen, straddling the JPY95 area.

Lastly, we note Canadian manufacturing sales data was poor and this is weighing on the Canadian dollar. Last week's out sized job gains seem like a statistical fluke. Weak energy shipments, reflecting some refinery closures, and weakest primary metal sales in 3-years did not help matters. Unfilled orders are slipping and the new order pipeline is drying up (-0.9%). The CAD1.0150 seems to mark a near-term base for the greenback.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.