Week ending 10 April 2009, In a light and holiday-shortened forex trading week, global equities continued to rally as underlying market dynamics steadied, with the VIX volatility index falling to 36.53, a level not seen since September, and the TED spread holding below 100bps at 95.58.

The RBA cut rates by 25bps to 3.0%, citing reduced global outlooks and the near-certainty of an Australian recession. March employment lost 34.7K jobs, more than market expectations, and the unemployment rate rose to 5.7% while ANZ job ads dropped −8.5%. April consumer confidence improved to 8.3%. AUD/USD traded roughly flat for the week, constrained by support at 0.7050 and resistance at 0.7200, closing just below at 0.7192.

The U.S. February trade balance shrank to a deficit of US$26.0Bn as March import prices fell −14.9% y/y. April economic optimism improved to 49.1 as consumer confidence fell to −50, and February consumer credit contracted US$7.5Bn. February wholesale inventories reduced −1.5% m/m and March chain store sales declined −2.1% y/y.

The Eurozone’s April Sentix investor confidence improved to −35.3 from −42.7 as 4Q2008 GDP finalized down at −1.6% q/q, −1.5% y/y. February PPI printed −1.8% y/y with retail sales down −4.0, substantially worse than market expectations. EUR/USD could not push above resistance at 1.3590 nor below support at 1.3130, closing at 1.3175.

The BoE held rates steady at 0.50% and continued their pace of QE as the NIESR 1Q2009 GDP estimate printed at −1.5%. February industrial production is down −12.5% y/y, manufacturing production −13.8%, and March Nationwide consumer confidence declined to 41. The February trade balance printed a deficit of £7.315Bn visible, £3.248Bn total, while March PPI printed −0.4% y/y input, 2.0% output, and 3.3% output core. GBP/USD fell early to support at 1.4650 and rode the line for the week, while EUR/GBP fell through the 0.9070 level to close at 0.8986.

The Canadian economy lost 61.3K jobs in March and the unemployment rate rose to 8.0%. The March Ivey PMI fell to 43.2, February building permits by −15.9%; however, March housing starts rose 154.7K and February international merchandise trade printed a surplus of CA$0.1Bn. USD/CAD consolidated between 1.2200 and 1.2500, closing near the bottom of the range at 1.2278. AUD/CAD began trending downward but could not break below 0.8750, closing at 0.8829.

In New Zealand, 1Q2009 NZIER business confidence fell to a new low of −65. March REINZ house sales ballooned 30.5% y/y as house prices fell −9.3% y/y. NZD/USD consolidated within a higher range, between 0.5700 and 0.5950, while AUD/NZD could not hold gains above 1.2360, closing at 1.2333.

The BoJ held rates at 0.10% and declined to intensify QE, relying on fiscal policy to revive the economy. February leading index fell to 75.2 and machine orders improved to −30.1% y/y. March bankruptcies rose 14.1% y/y and machine tool orders held at −84.5%. The February current account surplus widened to ¥1116.9Bn although the BOP trade balance narrowed to ¥202.1Bn, and the March Eco Watchers survey improved to 28.4 current situation, 35.8 outlook. USD/JPY consolidated within a higher range, between 99.50 and 101.40. EUR/JPY bounced from the 200-MA on daily charts and fell sharply to close at 132.14, and AUD/JPY consolidated between 70.60 and 72.15 as investors awaited confirmation of financial market stabilization.