Morning Currency Wrap for Wednesday March 2, 2011

Kiwi Sags; Save Haven Flows Continue - The story today is that NZD, aka the kiwi, fell to the lowest level this year after Prime Minister John Key said he welcomed a cut in the nation’s benchmark rate to bolster the economy following last month’s earthquake in Christchurch. The earthquake may have caused as much as NZ$20 billion of damages. The market is now pricing in a cut of 25 basis points at its meeting on March 10, with an outside chance of a 50-basis point reduction. Meanwhile, the Euro continued to be bid up by expectations of higher interest rates, especially after euro zone rose at its fastest clip since September 2008. Factory-gate prices in the euro zone jumped 6.1% from a year earlier, after increasing 5.3% in December. The ECB meets tomorrow and will probably signal that it intends to end its provision of unlimited 3-month funds. This move would be a precursor to eventual rate hike. Keep in mind that measure to address the European sovereign debt crisis will be worked out this month and should restrain the upward movement in the Euro until a comprise is agreed to. Elsewhere, safe haven flows continue to flow towards the CHF, Yen, and gold as the North Africa and the Middle East situation simmer. There were reports yesterday that Saudi Arabia was sending tanks to Bahrain, which were latter denied. The market is nervous the crisis could spread and engulf key oil producer Saudi Arabia with its planned Day of Rage protests on March 11. In the US today, the USD stayed within its overnight ranges after a report showed US private employers added more jobs than expected in February. The Ben Bernanke show continues on capital hill today as he reports to the House of Representatives at 10:00 am. He is unlikely to offer any new take on the economy or its outlook after signally yesterday that he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth. In Canada, the CAD lost a little ground yesterday after the Bank of Canada's policy statement, but managed to claw back some of its losses today as oil prices continued to advance surpassing the $100 level yet again.