Brave New World

USD- Remaining supported… for the time being 09/03/2009

The Dollar’s position as last safe haven currency should continue in the next couple of weeks. The greenback made gains last week against the GBP, EUR and JPY and weakened slightly against the CHF, NZD and AUD. So long as risk appetite continues to diminish the currency will gain from a flight to safety among domestic and foreign investors. The DXY made strong gains last week, as global equity markets tumbled on the back of poor economic data and further concerns about the health of the financial system. Further data out this week is expected to confirm a dismal domestic picture. Key data to watch is on Tuesday with wholesale inventories, Wednesday with Monthly budget and Thursday with retail sales. If you look for them there are some crumbs of comfort- ISM manufacturing has risen 3 points from a near 30 year low in December, the nonmanufacturing composite rose more than 5 points in January since November and signs that credit markets are thawing albeit painfully slowly. The Term Asset- Backed Securities Lending Facility will be launched in mid-March, freeing up credit for consumers. Still, the housing market is is still in a mess- with inventories continuing to pile up. Moreover, demand in the form of exports and capital spending has continued to plunge. The ISM export orders index in February was 16 points below its 20 year mean. Commercial construction outlays plunged at a 27% annual rate in the three months ended in January, the sharpest in seven years. Hopes for a recovery in the near term- as in 2009- look tenuous at best. In terms of USD support deterioration and risk if systemic risk abroad look to safe guard the dollar’s safe haven status. However, an unprecedented level of new debt issuance needs to be supported by the Chinese; and this can only take place if growth there remains at a sufficient level to stave off calls to spending domestically, rather than bailout their rich trading partner.