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By Andrew Wilkinson at IB:

Last week we heard carbon-copy statements from the Reserve Bank of Australia’s two leading officials who tried to steer the conversation about monetary policy towards a “normal” interest rate setting. As investors listened and as they observed fresh domestic and regional data indicative of ongoing above normal growth, they once again clung onto the coat tails of the Aussie dollar. Next week the RBA meets to discuss whether to once again lift interest rates and as they do they must consider fresh evidence from a slide in retail sales and housing-related data that indicates policy has already bitten.

Aussie dollar – Tremendous retail sales weakness ran contrary to analysts’ predictions today as sales during February fell 1.4% compared to January. Predictions showed a gain of 0.3% was expected building on a positive gain to start the year of 1.2%. In the event January’s number was revised slightly lower just to rub salt into the wounds. Same time data showed a huge deviation in permit approvals for work on homes and apartments. Expectations for a 2.1% increase were left for dust in the event of a sharp 3.3% decline. Both numbers suggest a decrease in consumer and to an extent builder confidence in the outlook.

As a result the Aussie turned tail on Tuesday’s surge to a peak of 92.16 U.S. cents and immediately fell to as low as 91.37 cents. Here’s the bottom line: The RBA has already raised rates by four quarter point increments during its last five meetings. It has bluntly stated that policy is over-easy and will need to take away the punchbowl further. Today’s data should do nothing to derail this process unless it is not currently happy with the market’s implied cycle-top at 5%. In the meantime the Aussie looks shaky given the sudden collapse of an apparently firm foundation.

Japanese yen – A fiscal year end that was supposed to see a massive inflow of yen repatriated by corporate Japan failed to swell the value of the Japanese yen as many had expected. And while we can’t be sure that a record amount of yen was shipped back to Japan, what we can say is that the world has turned cooler in its demand for the safety elements offered by the yen at this time.

Today the yen is close to its weakest point against the dollar since January when investors assumed 2010 would be a year of recovery that was certain to lift U.S. yields in favor of the dollar. At that time the greenback surged to ¥93.70 while today dealers lifted the dollar back to ¥93.60 before profit-taking provided yen relief. Ahead of U.S. morning data the dollar buys ¥93.09.

Yet the picture was the same the world over and even the Aussie dollar, reeling from rate uncertainty, managed to rally earlier against the yen. Against the euro the yen fell to ¥125.61.

U.S. Dollar – An ADP report on Wednesday showed an unexpected loss of 23,000 jobs when the market was looking for a gain of 40,000. The U.S. dollar is taking something of a hammering following the data led by a surge in both the yen and the Swiss franc versus the greenback. Tomorrow’s data reveals the latest weekly initial claims data, which has recently been on an improving path that suggests possible gains from Friday’s non-farm payroll data. The problem facing traders is that many markets will be closed in observance of Good Friday, while many European markets won’t return and therefore can’t respond until Tuesday.

British pound – Month end position squaring is helping the pound build on gains made so far this week. The pound is trying to make hay while the sun shines during this further current bout of broader dollar weakness and has just made a fresh two-week high at $1.5187. Against the euro the pound continues to strengthen and is at its best reading in a month at 88.98 pence per euro. Against the Japanese yen the pound reached a five-week high and currently stands at ¥141.19.

Canadian dollar – Monthly GDP data for the Canadian economy showed a slightly higher than forecast gain of 0.6%, beating the forecast by one-tenth of a percentage point. However, the revised reading for December data shows precisely where that one-tenth came from, leaving the result a net wash. The Canadian dollar reached 98.72 against the greenback ahead of today’s data but has eased to 98.53 cents.

Euro – The euro is trying desperately to remain above $1.3500 having been forced back yesterday to beneath $1.3400. Post ADP data in the United States, the euro reached an intraday high of $1.3519. A loss of 7,000 jobs originally reported for February was revised to a 1,000 gain in German unemployment data, while the latest measure for March showed an unexpected 31,000 drop in unemployment. The data eased the rate of unemployment by two-tenths to 8%. Meanwhile across the Eurozone the February unemployment rate was maintained at 10% after a 9.9% reading in January.

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