A Pfennig For Your Thoughts

In This Issue…

  • Loonies soar!
  • German Business Confidence soars!
  • Thailand turns a deficit around!
  • Japan’s economy continues to be strong!

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And Now… Today’s Pfennig!

A Record Current Account Surplus For Canada!

Good day… Well… At least one currency is rocking and rolling because they are able to post a positive balance of payments! Yes, there are a few countries around posting such positive balances, but most of them reside in Asia, and we know that getting their currencies to react positively is like pulling teeth! The Eurozone also has a positive balance of payments, and they, too, have a currency that can’t seem to get its legs back…

But, what have we here? The Canadian dollar / loonie… Is moving higher and leaving the 86-cent handle in its rear view mirror! Traders and investors are trading the loonie as it should be traded after Canada posted a wider Current Account Surplus than last quarter… The loonie, by the way, is trading at a 14-year high! Canada’s surplus widened to a new high of C$13.3 billion in the 4th QTR. That passes the old record like a hot rod Lincoln passing a picket fence! The old record, in case you’re keeping score at home, was C$10.87 achieved in 2001! So, go loonie, go loonie… I’m bobbing and weaving on the desk, looking for some dance music!

The loonie has brought some friends to the dance, too! Aussie and kiwi, because of their association with loonies as Commodity Currencies, have really experienced some love for the first time in weeks. Commodities have really seen some difficult times lately, but in no way do I think their rides on the rally train have come to an end. But with oil, natural gas, and gold all experiencing rough times, it’s causing a real drag on the rest of the commodities as a whole… The CRB (Commodities trading index) has fallen out of bed since February began… From my view in the cheap seats, I see this simply as a technical correction… We shall see, eh?

I guess I had better give you an update on the currencies performances yesterday and overnight before I go on! The European currencies are still going through the same old wash… The Asian currencies, led by yen, have backed off their lofty status just a bit, and the commodity currencies, as I said above have seen some positive movements… Now that we’re up to date… Here’s the rest of the story!

OK… Did you see the Business Confidence report (as measured by the think tank IFO) from Germany yesterday? WOW! Germany’s IFO Business Confidence index has gapped up almost to a 15-year high, a really positive precursor to stronger growth trends ahead. I’m going back to the drawing board on Eurozone interest rates after this report… Recall that I said earlier that the ECB would begin their rate hike campaign in December, which they did, and that we could expect rate hikes in March, June, and September… But now I’m thinking rates could be higher than 3% when we turn the calendar on 2006…

Nevertheless, rates going to 3% in the Eurozone will go a long way toward helping the euro find those legs it lost last year!

Now, this morning, I see where Germany’s unemployment declines in February by 5,000… I know that doesn’t sound like a whole lot, but in this environment, any gains in the unemployment ranks rings a sweet-sounding bell. Take the Business Confidence report I just talked about, and you can see businesses getting back to hiring and making the unemployment ranks much smaller… There are some readers that write to me and tell me it’s not as good in Germany as I portray it to be… But what else can I say? The data shows that it’s all seashells and balloons right now in Germany… And that bodes very well for the rest of the European Union!

Speaking of the Eurozone… Inflation here has inched up to 2.4% annualized, which is going to give ECB President Trichet all the fuel he needs to give a real fire and brimstone speech on fighting inflation after the rate announcement on Thursday! He can easily point to the Maastricht Treaty, which mandates the ECB to provide price stability, and this latest inflation report… Oh brother, this is his real chance to put some other bad choices of words that he has spoken in the past away… Far away… Another-galaxy-like far away!

Thailand has been in the news quite a bit lately, and for all the wrong reasons… The PM’s problems have been the center of attention. However, some other “good” things have been going on here, too… Take Thailand’s Current Account Surplus if you will… The surplus widened to $504 million in December… Recall, it wasn’t that long ago that the rise in fuel prices had driven Thailand’s Current Account to a deficit… Well, fuel import curbs and rising interest rates have done wonderful tricks here to get the Current Account back in order! This should provide some strong underpinning for the baht!

Some sanity has come back to the trading in Icelandic krona… The currency is slowly recovering from last week’s bashing… I can’t say anything more than what I already said about the currency last week… Just a reminder that it’s a small country, with a small population, and a small economy, and will be subject to wild swings like last week from time to time…

Japanese yen gave back a tiny piece of its gains yesterday, but is still on a nice trend that goes back about 3 weeks… I’m still somewhat suspicious of this move, as we’ve seen so many false dawns with yen… But this time seems to be different in that the economic strength is there… And the Bank of Japan appears ready to open Pandora’s Box of interest rate hikes, which should be a huge lift to the yen… Another piece of strong data from Japan came through last night… This time, it’s Factory Production, which rose .3% in January from December… Compare all the good economic news to what’s coming out of the U.S….

Currencies today: A$ .7410, kiwi .6610, C$ .8780, euro 1.1890, sterling 1.7490, Swiss .7590, ISK 65.40, rand 6.1850, krone 6.7550, forint 212.55, zloty 3.1850, koruna 23.80, yen 116.20, baht 39.15, sing 1.6230, China 8.0402, pesos 10.47, dollar index 90.45, silver $9.73, and gold… $557.10

That’s it for today: I’m still keyed up from last night’s episode of 24! And next week we get 2 hours of the greatest show on TV! Today is one of my 4 sisters’ birthday… I came from a big family, and I can’t believe I still remember all my sibling’s birthdays! A lot of data today, should be all over the place! Have a great Tuesday!

Chuck Butler
EverBank World Markets