• The dollar fell on Tuesday after Standard & Poor’s reaffirmed Greece’s credit rating and the Federal Open Market Committee maintained the fed funds target rate at a range of 0 to 0.25%, as expected, and continued its pledge of keeping rates low for an extended period. The Fed said it expects that “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Interest rates fell while commodity and equity prices rose. The S&P 500 broke its 1150-area resistance and rose 8.95 to 1159.46, its highest close since October 2008. The euro advanced. EU finance ministers said they have plans to aid Greece and S&P affirmed the nation’s BBB+ rating, removing it from “creditwatch negative.” Sterling was supported by stronger-than-expected UK home prices and reports that the Conservatives could win a majority in the UK parliament. The Australian dollar’s gain was limited by relatively dovish Reserve Bank of Australia policy meeting minutes. The RBA said interest rates will gradually move toward normal levels. The Canadian dollar rose to the highest level since July 2008, supported by stronger-than-expected Canadian manufacturing sales and labor productivity. Canadian Finance Minister Jim Flaherty said the loonie is competitive. Our USD/CAD position stopped out.
• The USD/JPY fell ahead of the Bank of Japan interest-rate decision. A report from Nikkei News that Japanese Finance Minister Naoto Kan plans to use FX reserves to finance government spending was denied. Kan said Japan has no plans to use FX reserves for spending. The government has pressured the BOJ to combat deflation. New BOJ easing measures could lead to a new test of the strong 92-area resistance. If this resistance is broken, the USD/JPY outlook will turn positive.

Financial and Economic News and Comments

US & Canada

• US housing starts fell 5.9% m/m to a seasonally adjusted 575,000 annualized rate in February after an upwardly revised 6.6% m/m gain to an upwardly revised 611,000 pace in January, according to figures released by the Commerce Department. February housing starts increased 0.2% y/y. Single-family housing starts declined 0.6% m/m to a 499,000 rate in February from a revised 502,000 pace in January. Multi-unit housing starts dropped 41.3% m/m in February to a 58,000 pace, the lowest level in four months. February housing starts decreased in the Northeast and South due to the effect of severe snowstorms on construction, but increased in the Midwest and West. Meanwhile, building permits declined 1.6% m/m to a seasonally adjusted 612,000 annualized rate in February after a revised 4.7% m/m decrease to an upwardly revised 622,000 pace in January. February building permits rose 11.3% y/y. Single-family building permits slipped 0.2% m/m to a 503,000 rate in February from a revised 504,000 pace in January. Multi-unit building permits fell 10.1% m/m in February to an 89,000 rate, the lowest level in four months.

• US import prices slipped 0.3% m/m in February, the first decline in seven months, after a downwardly revised 1.3% m/m increase in January, according to data from the Labor Department. The February decline was led by a 1.9% m/m decrease in fuel prices, which more than offset a 0.2% m/m increase in nonfuel prices. Meanwhile, export prices fell 0.5% m/m in February, the first fall in five months, after revised gains of 0.7% m/m in January and December. Import prices jumped 11.2% y/y in February; export prices increased 3.1% y/y.
• Canada’s manufacturing sales increased a more-than-expected 2.4% m/m in January, a fifth consecutive monthly gain, to C$44.6 billion ($43.7 billion), the highest level since November 2008, after an upwardly revised 1.9% m/m advance in December, according to figures from Statistics Canada. January manufacturing sales rose 10.0% y/y.
• Canadian labor productivity rose a more-than-expected 1.4% q/q in Q4 2009, the first rise since Q3 2008 and the highest quarterly growth rate since Q1 1998, after a 0.2% q/q decline in Q3, data from Statistics Canada showed.

Europe

• The eurozone consumer-price inflation rate eased to 0.9% y/y in February from 1.0% y/y in January, Eurostat reported, confirming its March 2 flash CPI estimate. The monthly CPI increased 0.3% m/m following January’s 0.8% m/m decline. The core CPI rate, which excludes food and energy prices, decelerated to 0.8% y/y in February, the lowest since records began in 1997, from 0.9% y/y in January.

• The ZEW German economic expectations index declined less than expected to 44.5 in March from 45.1 in February, data from the ZEW Centre for European Economic Research showed, indicating German investor confidence fell for a sixth straight month but improved significantly from the index’s historical average of 27.2. The current economic situation index increased to -51.9 from February’s -54.8, suggesting the current economic situation in Germany continued to improve this month. Meanwhile, the ZEW eurozone economic expectations index decreased to a lower-than-expected 37.9 in March from 40.2 in February and the current economic situation index improved to -61.3 from February’s -62.1.

• UK house prices rose a more-than-expected 6.2% y/y nsa in January, a third consecutive year-on-year rise, after a 2.9% y/y increase in December, according to data from the Department of Communities and Local Government. January house prices advanced 2.2% m/m sa, a ninth straight month-on-month gain, following a 0.8% m/m December increase.

Asia-Pacific

• Japan’s machine tool orders soared 217.4% y/y in February (vs. preliminarily reported 217.3% y/y) after surging 189.4% y/y in January, led by foreign orders, which skyrocketed 274.5% y/y (vs. preliminarily reported 267.7% y/y), according to final February data from the Japan Machine Tool Builders’ Association. Meanwhile, domestic orders jumped 134.4% y/y (vs. preliminarily reported 144.2% y/y).

FX Strategy Update

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