Morning Currency Wrap for Friday April 8, 2011

Actions Speak Louder Than Words - All that hawkish talk from various Fed officials over the past couple of weeks was just that, talk. It's become very clear to me that the Fed is trapped and it can't exist its loose monetary policy, while on the other side of the Atlantic the ECB followed up its talk with action - a 25 bps rate hike yesterday. The media is going to spin today's move lower in the USD on the prospect of a U.S. government shutdown, but don't believe it. The White House and Congress are arguing over $20 billion in spending cuts, but this amount is a small rounding error on a $14 trillion national debt. Back to the market, the Euro continued its uptrend against the USD and has now acquired the 1.44 handle. But the real story this week is the GBP, it is one of the best preforming G10 currencies this week and after today's PPI data the pressure is on the Bank of England to boost interest rates. The GBP rose to its strongest level since January 2010 against the USD after producer prices rose at a faster-than-expected 0.9% rate in March, driving the annual rate of producer inflation to 5.4%. Meanwhile, the only bright spot for the USD was against the Yen as the ultra loose monetary policy of the Bank of Japan continues to weaken the Yen due to interest rate differentials. Elsewhere, the broad-based selling in the USD is spurring commodity prices higher and increasing the appetite for taking on risk. This propelled the dollar block currencies of the AUD, NZD, and CAD higher, in fact the AUD hit a fresh 29-year high against the USD. In Canada, the CAD continued its push to fresh 3-year highs against the USD on the back of oil prices hitting a 32-month high. Today's release of March employment data initially disappointed the market. Canada lost 1,500 jobs in March, the first decline since September and compared with expectations for a gain of 26,500 jobs, however employers added some 90,600 full-time workers to their payrolls while decreasing part-time jobs. The unemployment rate dropped in March to 7.7% from 7.8%, as expected, as fewer Canadians were actively looking for work.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4438            USD/CHF     0.9115

GBP/USD    1.6396            USD/CAD    0.9552

AUD/USD   1.0549            EUR/CAD     1.3791

NZD/USD    0.7819           GBP/CAD     1.5665       

USD/JPY      85.20             USD/MXN    11.7461