Dollar Slump Continues, Aussie CPI Up Next

USD extends its decline despite strong earnings and improved consumer confidence. In Asia-Pacific trading, Japanese retail sales and Australian CPI are on tap.

Efforts by Trichet and Geither to endorse a strong dollar were fruitless as AUD, NZD, EUR, CHF and JPY moved to fresh extremes against the USD. Risk appetite was the catalyst for strength in AUD, NZD and CAD as the S&P 500 broke above a double top to the highest since 2008. Meanwhile, CHF and JPY gained as 10-year US Treasury yields fell to a one-month low of 3.32%; 4 bps lower on the day. Its rare for stocks to surge and yields to fall on the same day and suggests that positioning coming out of the long weekend and ahead of the Fed meeting were primary drivers, not fundamentals. Gold and silver slipped while oil was flat. After the bell, Amazon earnings were very weak.

Earnings from Ford and 3M were touted for the stock market rally. A rise in U.S. consumer confidence to 65.4 in April from an upwardly revised 63.8 in March was another factor. A fall in the Case Shiller house price index was brushed off. The 20-city index now sits just 0.5% above its April 2009 low and is likely to hit a fresh low in the coming months.

Of all the price action on Tuesday, the euro rally to a fresh 2010 high following a drop in Asia was the most impressive. EUR gains came despite: 1) Greeces budget deficit exceeding estimates 2) Trichet talking up the dollar 3) A Merkel aid saying Greece should restructure sooner rather than later. We warned last week that a restructuring is priced in and that any future EUR declines on restructuring talk will be buying opportunities, pending details of the announcement. Ashraf will show in tomorrows Video presentation for Cantos how and why the EURUSD path towards $1.49 remains intact.

Asia-Pacific Preview

The Australian dollar hit a record on Tuesday ahead of quarterly CPI at 0130 GMT. Now, the Aussie may be more vulnerable to a weak reading than an upside surprise. Economists are expecting a 3.0% y/y rise and a 1.2% q/q rise. Remember that last week, AUD gained on unexpectedly high import prices data and the producer price index both inflation measures. Given those figures, the market will be positioned for a reading around +3.1% y/y and +1.4% q/q.

Before the CPI, we get Japanese retail trade data at 2350 GMT. The effects of the disaster will be evident, with a 5.4% m/m decline expected. Momentum, flows, repatriation and yield differentials continue to drive yen trading, rather than eco data. On Tues, USD/JPY failed on a second effort to climb above 82.00 then fell 50 pips to the lowest since March 24. The move also closed the Mar. 24-26 gap. This indicates further weakness but be sure to guard against intervention risks, especially below 81.

New Zealand business confidence is also at 0100 GMT (see yesterdays note).

By AB AshrafLaidi.com Staff