Morning Currency Wrap for Tuesday February 22, 2011

Violence In Libya, Earthquake In New Zealand = Volatility - Here we go again, the CHF, Yen, and gold rose across the board amid speculation unrest will keep spreading in North Africa and the Middle East as violence in Libya boosted demand for the safest assets. The Libyan government attacked protesters and rebels claimed control of the second-biggest city, Benghazi, according to Al Jazeera television. What has been particularly unusual is the utter lack of safe-haven demand for the USD. Yes the North American market was closed yesterday so that would partly explain this, but today's flow into the USD is not would it would usually be - this is an ominous sign for the USD. Meanwhile, the Euro was able to shrug its earlier losses after European Central Bank council member Yves Mersch hinted that the ECB may adopt a tightening bias. “I would not be surprised at most colleagues concluding that we have upside risks to price stability,” Mersch said in an interview in Luxembourg yesterday. With the economy strengthening and inflation in breach of the ECB’s 2% limit, policy makers will “inevitably” have to “rebalance our monetary policy stance,” Mersch said. The ECB is scheduled to hold its next policy meeting on March 3. In Asia, the Yen managed to shake off its latest tussle with a credit rating agency and move higher. Moody’s Investors Service changed its outlook on the government’s credit rating to negative from stable. Meanwhile in New Zealand, the NZD was down by about 2% after an earthquake measuring 6.3 on the Richter scale struck the nation’s second- largest city, Christchurch, killing at least 65 people, as the market removed the likelihood of a previously discounted rate hike. In Canada, the CAD was slightly off after the retail sales report for December showed that sales fell 0.2% from the year-earlier. However, as I discussed in my blog yesterday, it is just a matter of time before the CAD de-couples from the USD and follows the price of oil and gold higher due to the ongoing turmoil developing in North Africa and the Middle East. Oil prices surged $6.50 to $92.70 and gold prices rose $12.61 to $1,401.20 per ounce in early trading today.