The currency’s surprising
strength came from the $20 surge in gold prices and rumors that China could
invest as much as $22 billion in a joint venture with an Australian fund to
purchase a 9 percent stake in mining giant BHP Billiton. China’s thirst for
commodities is no secret and acquisitions of commodity companies have been their
preferred way of spending their $1.68 trillion of foreign exchange reserves.
There is no significant data from Australia or New Zealand next week which means
there will be no triggers for further gains.
What About the US?
Building permits and housing starts both rebounded in the month of April and
although the numbers do reflect some stability in the housing market, I caution
against becoming too optimistic. The increase in housing starts came primarily
from a surge in multi-family developments, which increased 36 percent in April
after falling 35 percent in March.
Consumers however are still suffering; confidence for the month of May hit a
28 year low as rising gas prices and tight credit markets hurts their
pocketbooks of. The average price of gasoline across the nation hit a record
high for the ninth day in a row according to auto group AAA. In the past month
alone, prices at the pump have risen 11 percent and since a year ago, prices
have risen 22 percent. According to AAA, gas is the most expensive in Alaska
followed by Connecticut, with the average price of gasoline both exceeding $4 a
gallon. The US economy still faces many threats, but there could be some respite
in the coming month as Saudi Arabia pledges to boost oil production in June.
After having cut interest rates by 325bp, the recent rise in oil prices will
force the Federal Reserve to keep their focus on inflation. Although the big
moves have been concentrated primarily in the commodity currencies this past
week, we expect the volatility to spillover to the other pairs. There are a lot
of key Eurozone, UK and Canadian numbers due for release next week. From the US,
we are only expecting producer prices and existing home sales.
