Morning Currency Wrap for Wednesday April 13, 2011

Yesterday The Screens Were Red, Today The Screens are Green - Yes from risk off to risk on, now that turnaround Tuesday is over we are back to risk on, sort of, I think. With this change come Yen weakness across the board as traders go back to selling Yen and going long high yielders, aka the Yen carry trade. The Yen carry trade also put a firm bid under the AUD and NZD with a recovery in commodity prices and stocks. Also weighing on the Yen was the downgrade of the economy by the Japanese government for the first time in six months, which will ensure that Japanese monetary policy will remain ultra-loose for a prolonged period of time. Elsewhere in Asia, the Chinese Yuan snapped two days of losses as the Economic Information Daily reported that banks’ reserve ratios may be increased by 50 basis points on either April 15 or April 22. In Europe, the Euro continued to push higher on the back of data that showed the euro-zone economy is improving and on sovereign demand. Euro-zone industrial output rose for a fifth month in February, spurring speculation that the European Central Bank will tighten policy further after last week’s interest-rate increase. Also keeping a firm bid under the Euro was demand from sovereign names looking to recycle USD proceeds as the Euro offers better yields due to further rate rises in the euro zone while policy stays loose in the United States and Japan. In the US today, the USD clawed back some of its losses to the Euro after some measures of US retail sales improved more than expected in March. Excluding auto purchases, US retail sales rose 0.8%, a touch better than forecasts calling for a 0.7% increase. Statistics for prior months were also revised higher, which confirm that the US consumer is still spending. In Canada, the CAD was a little firmer ahead of detailed economic projections from the Bank of Canada. Yesterday, the market scaled back its expectations of future interest rate hikes in Canada after the BOC held interest rates steady at 1% as expected on Tuesday. The BOC did raise its growth estimates, but it also used strong language on CAD's strength. The market will now focus on the BOC's Monetary Policy Report and news conference later this morning to gleam any insight into future policy moves.

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

EUR/USD    1.4475            USD/CHF     0.8985

GBP/USD    1.6260            USD/CAD     0.9623

AUD/USD   1.0493            EUR/CAD     1.3933

NZD/USD    0.7903           GBP/CAD     1.5653       

USD/JPY      84.10             USD/MXN    11.7949