Andrew Wilkinson @ 10:59 AM, Monday November 09 2009
Today investors are gorging on anything other than the U.S. dollar
as a new feast of fourth quarter risk appetite gets underway. It took
perhaps an hour to get over Friday’s sticker-shock in the shape of a
10.2% headline reading of unemployment before the dollar would lie back
down. Over the weekend it took admission from the G20 that the world
economy is “not out of the woods yet,” and a weekend report from the
IMF noting that the dollar has moved “closer to medium term
equilibrium” but remains “on the strong side,” to rally another episode
of risk appetite. The dollar so far has fallen to a two-week low in
terms of the broad-based dollar index and the euro has once again
regained $1.50. It seems that it’s becoming easier to convince
investors that trading in their worn out dollars might be rewarded with
incremental gains in riskier overseas assets.
The
Scottish-bound G20 summit revealed little desire to walk away from an
existing economic approach aimed at reviving the world economy through
moentary and fiscal stimulus. After the meeting, British Chancellor of
the Exchequer, Alistair Darling said, “We agreed to maintain support
for the recovery until it is assured.” And that seems to have shaken a
few worrywarts who had been increasingly alarmed by cries to detail
exit strategies combined with data suggesting a fault in the recovery.
It would seem that post-G20 recovery is back on the agenda cosseted by
those same cozy conditions that were implemented several quarters ago.
The
dollar fell against all 16 major trading partners driving the dollar
index down by more than 1% to commence the week. The euro is fighting
hard to rally above $1.50 although it must be only a matter of time
before it sustains a jump above to challenge the recent $1.5063 high.
The Japanese yen is marginally higher after the IMF highlighted the
dollar’s rise as carry-trade victim of choice. The dollar today buys
¥89.90 yen.
The euro was also boosted by two reports,
admittedly reporting data from September, but still showing stronger
growth than analysts were prepared for in both cases. German export
orders surprised with a 3.8% monthly pace of growth while industrial
orders easily surpassed predictions of a 1.1% rise with a 2.7% monthly
increase. In the light of investors swift return to emerging market
stocks, the risk appetite trade is clearly showing alive today and
that’s once again pulling the stops out from beneath the dollar. The
MSCI Emerging Markets index has risen 5.4% in the last four sessions
and is fast-reversing the losses handed to it in the final days of
October.
The pound is shining today and buys $1.6772 while
it is a little easier per euro at 89.41. The Kraft bid for Cadbury’s
would involve currency demand for almost £10 billion at current
exchange rates and while the British confectioner has advised its
shareholders to vote against the proposed takeover, it does show that
corporations are doing more than just thinking about overseas
acquisitions.
The traditional risk currencies are sharply
higher in Monday’s trade. The Aussie dollar buys 93.00 U.S. cents,
while the Canadian dollar has easily brushed off Friday’s disappointing
employment report and buys 94.62 U.S. cents. With job news often
referred to as a lagging barometer of economic health, investors seem
more willing to buy the Canadian dollar on increasing risk demand than
sell it when data disappoints.
Andrew Wilkinson
Senior Market Analyst
Interactive Brokers Group
