Markets Shrug Off Weak NFP & Continues To Buy Risk

Daily Forex Fundamentals | Written by AC-Markets | Jan 11 10 11:15 GMT |

News and Events: Markets seem to have shrugged off the disappointing US non-farm payrolls data, with equity and commodity prices rallying as yields slipped. Friday closed with the S&P up 0.3% and yield curve steepened further, with US 2yrs rates dropping 5bp. Comments from Fed's Bullard today gave risky assets a boost, as he noted major G10 economies monetary policies were to stay exceptionally loose for some time, while liquidity programs would not pose a risk to price stability. In this environment of choppy improvement of global economic data and commitment by central banks to keep rates on the low end, risk correlated trades should continue to perform well, especially within the commodity bloc and EM space. Interestingly, recent CFTC positing report showed a large increase in AUD long positions by 10.6k to 47.1k, illustrating the markets positive view on commodity trades. Last week, the EUR underperformed against the USD, as lingering worries over the sovereign debt situation of EU members such as Greece weighed on the single currency. Meanwhile, the FT cited a senior credit analyst from a major ratings agency, saying that Portugal now faces a credit-rating downgrade unless its government takes real steps to trim its budget deficit. These mounting concerns could hinder the ECB hand in withdrawing stimulus and adjusting policies. That said, we will be looking to trade USD weakness against NOK, SEK, AUD and CHF over EUR and JPY. In China, December's export and import numbers released Sunday came in much stronger than the market expected (exports surged 17.7% y/y) and likely to pick up further in Q1 2010. With China's recovery vital for both commodity and EMs currencies, any withdrawal of stimulus, even efforts to curb speculative behavior in the local property market could cause significant selling (tightening expected in late Q2 2010). In Switzerland , Reuters reported that SNB chairman Hildebrand stated SNB to continue to prevent any excessive appreciation of CHF vs. EUR, saying that the SNB has no exchange rate target and will monitor FX developments very closely. The market reacted sharply to these comment, trading the EURCHF up to 1.4796 from1.4755. Given the SNBs track record on weakening the CHF there is little doubt the central bank will follow through on these threats if they deem warranted. On a side note, Swiss retail sales slipped to 0.6% y/y while November's strong 3.1% reading was revised down to 0.6%, numbers that won't help remove the central banks deflationary concerns Today Key Issues: 00:00 CHF BIS bi-monthly meeting (final day) 08:15 NOK Retail sales, % y/y Nov 3.1 prior 09:00 CPI, % m/m (y/y) Dec 0.3 (1.5) prior 12:30 USD G10 Chairman Trichet hosts a press conference at the conclusion of meeting 17:45 JPY Atlanta Fed President Lockhart (FOMC non-voter) speaks on the economic outlook 23:50 Current account, ¥ trn Dec 1.01 exp The Risk Today: EurUsd Fridays NFP clearly hurt USD bulls. Break above 1.4484 puts focus on 1.4570 (38.2% retrace of 1.5145-1.4218) ahead of 1.4590 high. The critical support zone between 1.4250/80 was solid and the range high at 1.4500 fell easily. markets seem to be adjusting there bearish EURUSD outlook would suggest upside potential over the rest of the month and a return to 1.48. A close below 1.4250 would reinstate a target of 1.4055 GbpUsd Strong reversal above bearish trendline resistance at 1.6150 gives the pair a bullish tone. 200-day moving average at 1.6112 forms first area of good demand, and beyond there expect prior resistance levels to still be in play: 1.6248 (Dec 18 highs), followed by 1.6323 (100 day moving average), and above there the 1.6400 psychological barrier. UsdJpy USDJPY has been trading heavy today, but it still looks like we will remain range bound between the range lows of 91.10 lows and decent supply ahead of 94.00. Risk are skewed to the downside. A break below 91.10 would indicate a resumption of the larger downtrend that has been in play since mid 2007, but this seems like the less likely scenario in our view. Look for bids ahead of trendline support at 91.10 (before 90.60) , and plenty of offers coming in around today's highs at 93.77 to contain the pair. UsdChf Todays strong move thru 1.0225 will have traders watching retracement levels at 1.0115 ahead of 1.0000. On the upside next levels to watch outside the range are 1.0508 key high and beyond there the 1.0700 major resistance (38.2% correction of the move from 1.1970 down to 0.9918). EURUSD GBPUSD USDJPY USDCHF 1.4665 1.6335 95.00 1.0350 1.4600 1.6235 94.00 1.0293 1.4575 1.6195 93.77 1.0245 1.4518 1.6150 92.45 1.0167 1.4410 1.6020 91.10 1.0115 1.4330 1.6000 90.00 1.0045 1.4300 1.5900 89.10 1.0000 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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U.K. Financial Company Pessimism Increases, CBI Says

By Gavin Finch

Jan. 11 (Bloomberg) -- U.K. financial-services companies are more pessimistic than at any time in the past year on the outlook for business growth, according to the Confederation of British Industry.

“The bounce in U.K. financial-services activity over the past six months is not expected to last as we enter 2010,” Ian McCafferty, chief economic adviser at Britain’s biggest lobby group said in an e-mailed statement. “Firms see their business volumes falling back again, with no further improvement in profitability over the next three months.”

The number of financial-services companies expecting a reduction in business volumes in the first quarter was 13 percent more than those anticipating a rise, the CBI said.

That’s the worst balance since December 2008, when the global economy was reeling following the collapse of Lehman Brothers Holdings Inc., according to the statement. The U.K. faces a “bumpy and uneven” path out of recession, Bank of England policy maker Kate Barker said last month.

Factors preventing the expansion of business included “uncertainty about demand,” increased competition and growing regulatory requirements, the survey showed. Companies told the CBI it’s unlikely that financial markets will deteriorate further.

Securities traders expect a “sharp” drop in profits in the first quarter of 2010 as proprietary trading income plummets, the CBI said.

‘Tough Going’

“The industry as a whole expects the coming quarter to be pretty tough going,” said John Hitchins, U.K. banking leader at PricewaterhouseCoopers LLP, which conducted the survey with the CBI. “They think things will get better in the medium term, and that the worst is over.”

The number of traders expecting income from investment and trading to fall in the first quarter was the most on record, the group’s quarterly financial-services survey showed.

The Financial Services Authority will force as many as 5,000 bankers earning more than 1 million pounds ($1.6 million) a year to defer 60 percent of their bonuses for three years, The Sunday Times reported yesterday. The move follows last year’s government decision to tax bonuses above 25,000 pounds at 50 percent.

The CBI surveyed 83 financial-services companies, including banks, building societies, insurers, brokers and fund managers from Nov. 18 to Dec. 2. The CBI represents about 240,000 companies that employ one-third of Britain’s private sector workforce. The survey began in 1989.

U.K. private businesses are more optimistic than a year ago on the economic outlook, according to a survey by Grant Thornton U.K. LLP and Experian Plc. The survey, which includes family owned firms, found that 58 percent expected revenue to increase in 2010, compared with 37 percent who forecast gains at the start of 2009.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

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Bernanke Bond Spread Most Since 2007 Shows Decoupling

By Daniel Kruger and Anchalee Worrachate

Jan. 11 (Bloomberg) -- The correlation between Treasuries and German bunds that has prevailed since credit markets started freezing in 2007 is breaking down as U.S. economic growth leaves Europe behind.

Yields on U.S. 10-year Treasury notes rose twice as fast as German debt with a similar maturity since the start of December, according to data compiled by Bloomberg. The bonds had traded almost in tandem since April 2007 as investors sought a refuge from the first global recession in six decades and then shifted to higher-yielding assets in 2009.

Pacific Investment Management Co., FAF Advisors Inc. and Fischer Francis Trees & Watts, who oversee more than $1.1 trillion, are buying bunds and selling U.S. debt to profit as the markets decouple. Strategists say Treasuries may post a second year of losses in 2010 because Federal Reserve Chairman Ben S. Bernanke will raise interest rates as America’s gross domestic product increases 2.6 percent while Germany’s expands 1.9 percent, Bloomberg surveys show.

“We’re going to continue to see this differentiation,” said Timothy Palmer, a money manager who helps oversee currencies and international debt in Minneapolis at FAF, which has $15 billion invested in taxable bonds. “Our view has been to be favorably disposed to European bonds over the U.S.”

Pimco Buys Bunds

Pacific Investment has accumulated the equivalent of $20 billion of bunds in the past month for its flagship Pimco Total Return Fund, Bill Gross, the co-chief investment officer at the Newport Beach, California-based firm, said in a Bloomberg Radio interview on Jan. 8. That’s about 10 percent of the fund’s $204 billion in assets, he said.

Yields on 10-year U.S. notes climbed 45 basis points to 3.83 percent since the Labor Department said on Dec. 4 that U.S. employers cut the fewest jobs since the recession began. Comparable yields on bunds, the benchmark for the 16 countries that share the euro, rose 21 basis points to 3.39 percent.

The difference in yields grew to as much as 0.49 percentage point last month, the most since July 2007. The gap narrowed 2 basis points to 0.45 percentage point on Jan. 8 after the December jobs report showed U.S. employers unexpectedly cut 85,000 positions. The Labor Department also revised the November figure to a gain of 4,000 jobs, the first increase since the recession began in December 2007.

Europe’s unemployment rate jumped to 10 percent last month, the highest in more than 11 years, according to the European Union statistics office. Economists expected 9.9 percent, after the 9.8 percent initially reported for October, a Bloomberg survey showed.

Profit Potential

Ten-year Treasury yields were little changed at 3.83 percent last week, while comparable bund yields were steady at 3.39 percent.

Trading of Treasuries was closed in Japan today for a holiday. Bunds hadn’t started changing hands as of 1:09 p.m. in Tokyo.

JPMorgan Chase & Co.’s head of European interest-rate strategy in London, Pavan Wadhwa, expects the U.S. yield will reach 4.1 percent by June 30 while the rate on bunds declines to 3.35 percent. An investor who sells $10 million of Treasuries and bets on bunds would earn a profit of about $210,000 if the forecasts are right, excluding currency fluctuations.

The firm’s weekly index measuring sentiment toward Treasuries fell to minus 15 on Jan. 4, the most bearish reading since March 2007. Back then, 10-year U.S. yields were just beginning to rise, surging as much as 0.75 percentage point to 5.32 percent by mid-June of 2007.

Declining Correlation

Treasuries lost 1.32 percent last quarter, while bunds returned 0.13 percent, including reinvested interest, according to Bank of America Merrill Lynch indexes. The 44-day correlation coefficient fell to 0.54 on Jan. 8 from a three-year high of 0.76 on Nov. 19. A value of one would mean U.S. and German 10- year yields moved in lockstep.

Decoupling became a favored term for investors and economists before credit markets seized up when they predicted a U.S. slowdown wouldn’t curtail expansion in Europe, Asia and Latin America. Instead, when the U.S. economy contracted 1.9 percent in 2008, German GDP fell 1.8 percent and Japan’s shrank 4.1 percent.

With economies emerging from the first global recession since World War II, investors say the U.S. will improve faster than Europe. U.S. GDP likely increased 3 percent last quarter, compared with a drop of 1.85 percent in Germany, according to the median estimates of economists surveyed by Bloomberg.

Reducing Stimulus

Euro-area growth will be restrained as governments reduce stimulus measures and unemployment rises, three research institutes said last week. GDP in the region probably rose 0.3 percent in the fourth quarter from the third, Germany’s Ifo institute, Italy’s Isae and France’s Insee said Jan. 8.

“As the data flows through and we put together two consecutive quarters of 4 to 4.5 percent GDP, there’s going to be a period toward the end of the first quarter where it’s going to be looking fairly sustainable,” said David Tien, a money manager at Fischer Francis in New York who helps oversee $19 billion. “The trend right now of a stronger U.S. is getting on track and definitely has room to run.”

Even investors who question the strength of the U.S. recovery favor bunds. Pimco’s Gross, who said Jan. 8 that America’s economy is still too fragile for the Fed to back away from its stimulus measures, reduced the Total Return Fund’s holdings of government-related securities to 51 percent in November from a five-year high of 63 percent in October. The firm doesn’t break down the data according to sovereign issuers.

‘Shaking Hands’

Before paring government debt, Gross had said Pimco bought Treasuries with the proceeds of mortgage-backed debt sales to the Fed as part of the firm’s “shaking hands with the government” strategy. That’s when the central bank embarked on so-called quantitative easing programs, acquiring assets including mortgages and government securities to reduce borrowing costs and stimulate growth.

The Fed and U.S. agencies have lent, spent or guaranteed $8.2 trillion to lift the economy from the worst recession since the Great Depression, data compiled by Bloomberg shows. The Treasury sold a record $2.11 trillion in notes, bonds and inflation-linked securities last year.

“German bonds are basically yielding the same as U.S. Treasuries and their programs have not been quantitative-easing- oriented,” Gross said in a Jan. 6 Bloomberg radio interview. “You move to a country where fiscal conservatism and the lack of check writing have taken place.”

Fiscal Divergence

U.S. yields will grind higher because America’s fiscal outlook will remain weak for the next several years, Gross said. That contrasts with Germany, where a constitutional amendment has mandated a balanced budget by 2016, he said.

Treasury 10-year yields may rise 30 to 40 basis points by May, causing the gap between bunds and U.S. notes to widen to 100 basis points or more from the current 45 basis points, Gross said. A basis point is 0.01 percentage point.

Treasury yields will rise more than bunds because the European Central Bank’s sole focus on fighting inflation will cause ECB President Jean-Claude Trichet to raise interest rates faster than Bernanke, according to Kommer van Tright, head of interest rates at Rotterdam-based Robeco Groep NV.

The ECB’s main refinancing rate has been 1 percent since May, while the Fed’s target for overnight loans between banks has been in a range of zero to 0.25 percent in December 2008.

“The Fed is more likely to be behind the curve than the ECB as they might hold rates lower for longer for the sake of improving the labor market or overall economic conditions,” said van Tright, who’s firm manages $180 billion.

‘Relative Strength Game’

German 10-year yields averaged 0.27 percentage point less than Treasuries the past decade, and 0.06 percentage point below comparable U.S. debt in the 1990s.

The gap widened to as much as 1.20 percentage points in October 2005 as the Fed increased rates. It began to shrink in mid-2006, with bunds yields eventually exceeding those on Treasuries by 0.88 percentage point in December 2008 as investors rushed for the safety of America’s debt in the wake of Lehman Brothers Holdings Inc.’s collapse three months earlier.

That’s also after the Fed said it was considering buying Treasuries to keep borrowing costs from rising and to revive credit markets.

“It’s a relative strength game that’s going on,” said George Goncalves, chief fixed-income rates strategist in New York at Cantor Fitzgerald LP. “This can last for a while but it won’t last forever.”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net.

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Trichet May Signal Central Bankers’ Risk Concern

By Simon Kennedy and Christian Vits

Jan. 11 (Bloomberg) -- European Central Bank President Jean-Claude Trichet, who warned investors against taking on too much risk two years before the financial crisis started, may be about to sound the alert again.

Trichet and fellow central bankers met financial executives in Basel, Switzerland, yesterday after officials signaled concern banks are rebuffing tougher regulation and embracing risk as the turmoil ebbs.

Risk is back in the spotlight as China witnesses a record increase in credit, Goldman Sachs Group Inc. posts record earnings and the MSCI World index of stocks logs a 74 percent gain since March. Federal Reserve Chairman Ben S. Bernanke and Chinese central bank governor Zhou Xiaochuan will attend talks in Basel today of the Group of 10 central banks, which Trichet chairs.

“As liquidity is still abundant there’s certainly a danger that an excessive risk taking behavior returns,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, central banks face a dilemma as they can hardly do more than calling on the banks at the moment.”

Trichet, who warned in November 2005 about “an underestimation of risks by financial markets,” is scheduled to brief reporters around 1 p.m. local time today.

‘Fragilities’

He may join the chorus of officials voicing concern about excessive risk taking, which led to the credit bust of 2007. Financial Stability Board Chairman Mario Draghi told reporters on Jan. 9 that markets may be overly optimistic about the recovery. Fed Bank of Kansas City President Thomas Hoenig said Jan. 7 that the Fed should move “sooner rather than later” to reduce stimulus.

“The markets are becoming risky again, bankers are becoming risk-takers again,” Draghi, who is also governor of the Bank of Italy, said in Basel. “At the same time, bankers should be aware of the fragilities in the system.”

The Bank for International Settlements, which is hosting today’s gathering, last month warned that low rates often spur banks to take on too much risk. In the U.S., regulators told banks on Jan. 7 to guard against possible losses from an eventual end to low interest rates.

“It is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases” in borrowing costs, the Federal Financial Institutions Examination Council, which includes the Fed, said in a statement.

‘Some Concerns’

ECB Governing Council member Ewald Nowotny said in Basel today that unfounded risk-taking isn’t a “major problem” in the euro area. “But we do see signs worldwide of excessive risk-taking,” he told reporters. “There are some concerns especially for the U.S. authorities.”

Markets are rediscovering their appetite for risk after central bankers truncated the recession with record low interest rates and governments around the world bailed out the banking system. The Fed has cut its benchmark rate to almost zero and taken on more than $1 trillion of assets on its balance sheet to combat the credit freeze, while its Japanese counterpart’s benchmark is also near zero. The ECB’s main rate is at a record- low 1 percent.

“The massive amount of financing and cheap funding that continues to be available to banks is a fertile ground for heavier risk taking,” Karsten Schroeder, chief executive officer of Amplitude Capital LLP, a Swiss money manager, told Bloomberg Television.

Stock-Market Rally

Goldman Sachs and JPMorgan Chase & Co. are among the banks taking advantage of low rates, a stock-market rally and the demise of competitors like Lehman Brothers Holdings Inc. to bolster profits. Banks have also increased lobbying against reforms aimed at restricting how much risk they can take.

Commercial bankers, who traditionally attend the January meeting in Basel, met with policy makers to discuss risk taking and regulation yesterday. Deutsche Bank AG Chief Executive Officer Josef Ackermann was among those scheduled to be there.

“There won’t be much sweet talk,” Juergen Michels, chief euro-region economist at Citigroup Inc. in London, said before the meeting. “Central banks could threaten to follow up with action if banks don’t stop taking excessive risks.”

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net; Christian Vits in Frankfurt at cvits@bloomberg.net.

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US Economic Indicators Preview

Weekly Forex Fundamentals | Written by BHF-BANK | Jan 11 10 10:24 GMT |

(Week of 11 to 17 January 2010) Trade deficit (Nov): widening due to higher import prices Retail sales (Dec): another increase led by car sales Consumer prices (Dec): moderate rise due to lower gasoline prices NY Empire manufacturing index (Jan): rebound after December plunge Industrial production (Dec): utilities and the inventory cycle have a positive impact UMI consumer sentiment (Jan): stable after marked improvement in December The trade deficit narrowed significantly in October, from $35.7bn to $32.9bn. This was due partly to further solid gains in exports and partly to a decline in the price and volume of imported petroleum. In November, import prices rose by 1.7% mom, which indicates that the nominal trade deficit could have widened to about $35bn, even though the weak dollar and stabilisation of global growth are continuing to bolster exports. After surging in November, import prices are likely to have gone down by at least 0.5% mom in December, as average crude oil prices declined by 4.5% mom. The Congressional Budget Office (CBO) estimates that December's budget deficit will have hit $92bn, about $40bn more than in December 2008. There is generally a budget surplus in December, because of corporations' quarterly income tax payments and taxes on year-end bonuses, but due to the economic crisis, those tax receipts dropped again. However, adjusted to eliminate variation attributable to shifts in the timing of payments, the deficit in December 2009 would only be about $11bn higher than in the previous December. The Beige Book could state that the economic recovery is being led by manufacturing and the inventory cycle, whereas activity in many sectors is still subdued as a result of moderate domestic demand and tight bank lending. The labour market deterioration is slowly petering out, and consumer spending is picking up modestly, but residential real estate appears to have weakened again after the initial deadline of the tax credit for first-time home buyers. Due to high unemployment and idle capacity, inflationary pressure could be reported as benign again. Retail sales increased by 1.3% mom in November, as higher sales at gasoline stations contributed about 0.5 percentage points. However, slightly lower gasoline prices will have dampened retail sales in December. Given that domestic vehicle sales rose by 2.5% mom, retail sales could have gone up by about 0.6% mom. Less cars, the increase could have been a mere 0.2% mom, after 1.2% mom in November. At the beginning of the new year, Christmas gift vouchers could have a positive impact; some of them could already have been spent just after Christmas, which would boost the December figures. The University of Michigan's (UMI) final December consumer sentiment index was revised downward from 73.4 to 72.5, but it remained much higher than the November level of 67.4. Despite a rise in gasoline prices at the beginning of the new year, we expect UMI's consumer sentiment to have remained stable in January, as the weekly ABC consumer comfort poll continued to recover. CPI's annual rate turned positive again in November for the first time in eight months, because the favourable base effects from the energy side have evaporated. Lower gasoline prices and discounts could have led to a modest increase in consumer prices of 0.1% mom in December, after 0.4% mom in November. But the annual rate will nevertheless rise sharply again to about 2.7%. Core CPI, which was stable in November, could have risen slightly by 0.1% mom. The annual rate would then continue to approach the 2% mark, but due to ongoing resource slack and high unemployment, core CPI rates are expected to decelerate again in the course of 2010. Initial jobless claims rose modestly by 1k to 434k in the week ending 2 January, but the 4-week moving average declined to 450.3k - the lowest level since mid- September 2008, before the financial crisis escalated. We predict that initial jobless claims will have remained more or less unchanged in the week ending 9 January. Business inventories could have risen noticeably by 0.6% mom in November, the second increase after 13 declines in a row. We already know that factory inventories went up by 0.2% mom, but wholesale inventories jumped by 1.5% mom. The New York Empire manufacturing index plummeted from 23.5 to a mere 2.6 in December, thus barely indicating growth. However, the Philadelphia Fed index went up and the national ISM manufacturing index actually rose to a 3 ½ year high. Although we expect manufacturing activity to decelerate again in the near future, the decline of the New York Empire manufacturing index appears exaggerated, and we forecast that it will have recovered to 11.0 in January. Industrial production rose by 0.8% mom in November, led by a sharp increase of 1.1% mom in manufacturing production. The restocking of inventories is having a positive impact on production at present, and as the ISM production component went up to 61.8 in December, manufacturing is expected to have expanded again. Furthermore, after an unseasonably warm November, cold December temperatures could have raised utility output noticeably, by at least 0.2 percentage points. We predict that total industrial production will have increased by 0.7% mom in December. At 71.9%, capacity utilisation could have reached its highest level in 2009. BHF-BANK http://www.bhf-bank.com This report has been prepared by BHF-BANK Aktiengesellschaft on behalf of itself and its affiliated companies (together "BHFBANK Group") solely for the information of its clients. The information and opinions in this document are based on sources believed to be reliable and acting in good faith, but no representation or warranty, express or implied, is made by any member of the BHF-BANK Group as to their accuracy, completeness or correctness. Opinions and recommendations are given in good faith but without legal responsibility and are subject to change without notice. The information does not constitute advice or personal recommendation, for which the duty of suitability would be owed, but may facilitate your own investment decision. Moreover, you should seek your own advice as to the suitability of an investment matter mentioned herein. Investors are reminded that the price of securities and the income from them can go down as well as up and that the past performance of an investment or a market is not necessarily indicative for future results. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete, and this document is not, and should not be construed as, an offer to sell or solicitation of any offer to buy the securities mentioned in it. BHF-BANK Group and its officers and employees may have a long or short position or engage in transactions in any of the securities mentioned in this document, or in any related securities. This publication must not be distributed in the United States.

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China Trade Rebound Aids Global Economic Recovery

By Bloomberg News

Jan. 11 (Bloomberg) -- China’s exports surged in December and imports rose to a record in a stronger-than-forecast trade rebound that may lessen the case for governments to sustain stimulus programs this year.

Exports climbed 17.7 percent from a year earlier, the first increase in 14 months, and imports jumped 55.9 percent, the customs bureau said on its Web site yesterday. Year-on-year comparisons are affected by the tumble that began in late 2008, when the global credit crisis deepened.

“A global recovery is gaining momentum and countries’ exits from stimulus may come earlier than expected, including for China,” said Wang Hu, a Shanghai-based economist at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “Soaring imports are more evidence that China’s economy may face an increasing danger of overheating.”

China’s central bank last week guided three-month bill yields higher for the first time since August, suggesting that the government wants to rein in liquidity to limit the risks of real-estate bubbles and resurgent inflation. Stronger exports may fuel overseas calls for gains by the yuan against the dollar after policy makers halted appreciation for 17 months to help manufacturers weather slumping demand.

The trade report spurred the currencies of Australia and New Zealand on bets their economies will benefit from the increase in shipments to China. The Australian dollar rose 0.4 percent to 92.85 U.S. cents and its New Zealand counterpart gained 0.5 percent to 74 cents as of 10:19 a.m. Sydney time.

Property Lending

China’s State Council pledged yesterday to step up “guidance” of property lending and counter inflows of speculative capital after a record expansion of credit in 2009 that was part of government efforts to prop up growth.

None of 21 economists in a Bloomberg News survey forecast such large gains in exports or imports. China’s shipments to the U.S. and the European Union grew 15.9 percent and 10.2 percent respectively from a year earlier, the data showed. Imports from Australia and Malaysia more than doubled.

China overtook Germany as the world’s No. 1 exporter of goods in 2009 even as the Asian nation reported yesterday its first annual decline in shipments in more than 25 years.

The data “could add more pressure on the renminbi,” said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong, using another term for the yuan. The “handsome recovery of China’s external trade” mirrored gains by other nations in the region, Lu said.

Taiwan Trade

Taiwan reported its biggest export gain in 14 years in December after shipments plunged a year earlier.

Export gains may make China, the world’s fastest-growing major economy, less dependent on government stimulus measures, including spending on railways, roads and power grids.

In December, exports were $130.7 billion and imports were $112.3 billion, leaving a trade surplus of $18.4 billion. The customs bureau said the import value was unprecedented and exports were the fourth-largest on record.

“The rebound in export growth is no surprise given the collapse in trade at the end of 2008,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “But this is still good news and reflects a real improvement in external demand.”

Growth Outlook

Among other positive signs for the global economy, the International Monetary Fund has said it will probably raise its estimate for 2010 world growth from 3.1 percent. European executive and consumer confidence jumped in December to a level last seen before the demise of Lehman Brothers Holdings Inc. in 2008, a report showed last week.

For the full year, China’s exports fell 16 percent and imports declined 11.2 percent. The trade surplus was $196.1 billion, sliding for the first time since 2003 and falling short of 2008’s record $295.5 billion.

December’s numbers show the slump is over for China’s exporters, Huang Guohua, a statistics official with the customs bureau, said yesterday in an interview broadcast on state television. That comment contrasts with Chinese leaders saying in the past month that the economic recoveries of China and the world are not yet on solid foundations.

Chinese imports are being boosted by the nation’s economic acceleration, manufacturers buying materials for processing into exports, and an increase in commodity prices. On the nation’s east coast, Qingdao Port Group Co. is expanding wharves to handle iron-ore imports.

Claiming Credit

“Surging imports show that the economic stimulus policies are effectively boosting domestic demand, which also helps to drive the global economic recovery,” the customs bureau said in a statement.

For all of 2009, iron-ore imports surged 42 percent from a year earlier, those for copper and its products soared 63 percent, and purchases of aluminum and its products climbed 164 percent, the data showed.

While Premier Wen Jiabao said Dec. 27 that the nation will “absolutely not yield” to calls for currency gains, yuan forwards indicate that the government will allow appreciation of 3 percent against the dollar in the next year. The yuan closed at 6.8275 per dollar on Jan. 8.

Yuan forwards rose to their highest level in more than a month on Jan. 8 after the central bank guided the increase in three-month bill yields. The currency gained 21 percent in three years after a fixed exchange rate was scrapped in July 2005.

China surpassed Germany in 2007 to become the third-largest economy and is forecast to overtake Japan this year, assuming the No. 2 spot behind the U.S.

Germany shipped 734.6 billion euros ($1.05 trillion) of exports in the first 11 months of last year, the Federal Statistics Office said Jan. 8. That compared with China’s $1.07 trillion over that period.

--Paul Panckhurst, Li Yanping. Editors: Paul Panckhurst, Chris Anstey

To contact Bloomberg News staff for this story: Paul Panckhurst in Beijing at +86-10-6649-7574 or ppanckhurst@bloomberg.net

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Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Jan 11 10 10:39 GMT |

EUR/USD Current level-1.4512 EUR/USD is in a downtrend, after peaking at1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated between the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169. As expected, the pair couldn't break below 1.4257 and reversed at 1.4264, advancing beyond 1.4499 resistance. Current bias is positive, well supported at 1.4460 and the pair is targeting 1.4630-70 resistance area. Crucial on the downside is 1.4260. Resistance Support intraday intraweek intraday intraweek 1.4534 1.4499 1.4460 1.4170 1.4670 1.5146 1.4260 1.3740 USD/JPY Current level - 92.43 The overall downtrend has been renewed with the recent break below 87.12. Trading is situated below the 50- and 200-day SMA, currently projected at 89.50 and 93.54. The reversal around 93.40 is already a fact and current intraday bias is negative, so we'll expect further depreciation towards 91.15-24 support area. Intraday resistance comes at 92.80. Resistance Support intraday intraweek intraday intraweek 93.40 93.40 92.10 86.01 93.70 95.60 91.25 79.60 GBP/USD Current level- 1.6141 The pair is in a downtrend after peaking at 1.7042. Trading is situated between the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. As expected, the pair broke through 1.6070 resistance, stating that a bottom has been set at 1.5896 and the bias is positive for 1.6240, en route to our main target at 1.6410. Nevertheless, current upswing is a part of the consolidation pattern above 1.5833, so 1.6070 remains crucial support on the downside Resistance Support intraday intraweek intraday intraweek 1.6240 1.6410 1.6070 1.5706 1.6410 1.7042 1.5896 1.5352 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Pound Rises Against Dollar on Signs of Global Economic Recovery

By Anna Rascouet

Jan. 11 (Bloomberg) -- The pound rose against the dollar for the third time in four days as stocks advanced on signs the global economic recovery is gathering momentum and a report showed U.K. businesses are more optimistic than a year ago.

The British currency also strengthened against the yen as the FTSE 100 Index jumped as much as 0.9 percent, the most in a week, following a Chinese report showing exports climbed 17.7 percent from a year earlier and imports surged 55.9 percent. Grant Thornton U.K. LLP and Experian Plc said a net 16 percent of unlisted U.K. companies surveyed are confident about their prospects for 2010, up from net minus 47 percent a year earlier.

“You have to look at the general backdrop,” said Neil Mellor, a London-based currency strategist at BNY Mellon Corp. “If risk appetite is on the rise, then sterling will rise against the dollar. The news is mixed, but this is broad positive sentiment that’s behind the move.”

The pound rose 0.8 percent to trade at $1.6149 as of 10:27 a.m. in London today. It appreciated 0.7 percent to 149.46 yen, and weakened 0.1 percent to 89.82 pence per euro.

The yield on the 10-year gilt was little changed at 4.06 percent. The two-year note yield also stayed little changed at 1.25 percent.

While optimism for Britain’s private companies rose, a separate report showed U.K. financial-services companies are more pessimistic than at any time in the past year on the outlook for business growth. The Confederation of British Industry said today the number of companies expecting a reduction in business volumes in the first quarter was 13 percent more than those anticipating an increase.

The pound’s gains today came in the wake of seven weekly declines in eight against the dollar as investors bet Prime Minister Gordon Brown’s bid to renew his term the next election this year will drive him to deepen the nation’s budget deficit, hurting the nation’s credit rating.

Pacific Investment Management Co.’s Head of Global Portfolio Management Scott Mather told the Wall Street Journal last week that the U.K. has an 80 percent chance of seeing its credit rating cut if it maintains its current debt-reduction plan.

To contact the reporter on this story: Anna Rascouet in London arascouet@bloomberg.net.

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Swiss Franc Weakens Versus Euro as Hildebrand Says Ready to Act

By Lukanyo Mnyanda and Simone Meier

Jan. 11 (Bloomberg) -- The Swiss franc weakened against the euro after the country’s central bank President Philipp Hildebrand said policy makers will seek to prevent “excessive appreciation” of the currency.

The franc dropped as much as 0.3 percent against the euro as Hildebrand said in a statement read by spokesman Werner Abegg from Zurich today that the Swiss National Bank will “monitor foreign-exchange market developments very closely” even as it doesn’t have a currency target. The franc had its biggest monthly gain versus the euro in a year during December as traders bet the central bank had relaxed its resistance to a stronger currency.

The comments “suggest the SNB is certainly not going to let euro-Swiss collapse from here,” said Geoff Kendrick, director of currency strategy in London at UBS AG. “The chance of SNB intervention has clearly increased again following those comments.”

The franc was 0.1 percent lower at 1.4768 as of 9:44 a.m. in Zurich, after trading as weak as 1.4795.

The SNB began selling the franc in March in an effort to ward off deflation and combat the nation’s economic slump. The currency strengthened to less than 1.50 per euro last month for the first time since the sales began on speculation the fading prospect of deflation would allow policy makers to tolerate the franc’s appreciation.

Consumer Prices

“Markets wanted to test and see the new limits,” said Fabian Heller, an economist at Credit Suisse Group AG in Zurich. SNB policy makers “certainly try to prevent volatility in the franc.”

The SNB may have sold the franc in currency markets today at the same time as the statement, Heller said. Abegg declined to comment on whether the SNB intervened.

Swiss consumer prices increased 0.3 percent in December from a year earlier, lower than the 0.5 percent advance forecast by economists in a Bloomberg survey, a government report showed last week. For the whole of 2009, prices fell 0.5 percent, the statistics office said.

“Deflation risks remain significant,” UBS’s Kendrick said.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Simone Meier in Dublin at smeier@bloombert.net

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Canadian Dollar Offers Buying Opportunity on Jobs Data, UBS Says

By Justin Carrigan

Jan. 11 (Bloomberg) -- The Canadian dollar may offer buying opportunities after the nation’s employers unexpectedly cut jobs last month, according to UBS AG.

The economy lost 2,600 positions in December, compared with a forecast gain of 20,000 and an increase of 79,100 jobs in November, a government report showed on Dec. 8.

“The release was disappointing but this may offer fresh entry levels for Canadian dollar-longs on the crosses as the economy continues to benefit from a U.S. recovery,” Brian Kim, a currency strategist at UBS in Stamford, Connecticut, wrote in an e-mailed report yesterday.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Dollar No Match for Aussie, Loonie Approaching Parity

By Oliver Biggadike and Candice Zachariahs

Jan. 11 (Bloomberg) -- The biggest monthly rebound in the Dollar Index since January means faster gains for Australia’s and Canada’s currencies as the recovering U.S. economy boosts demand for their commodities.

The Canadian and Australian dollars will strengthen to trade at parity with the greenback or better together in 2010 for the first time in 34 years, appreciating at least 2.6 percent and 7.4 percent, three of last year’s four best forecasters for both currencies say. Traders are favoring the so-called loonie and Aussie over the dollar on the Chicago Mercantile Exchange even while betting more than ever on the Dollar Index advancing.

Accelerating U.S. growth will spur demand for Canadian oil and natural gas as China’s expansion boosts purchases of Australian iron ore and coal, pushing both currencies higher, said Sacha Tihanyi, a foreign-exchange strategist in Toronto at Bank of Nova Scotia. The loonie and Aussie both rose last week even as the People’s Bank of China took steps to curb lending.

“The global economy is going to strengthen, and the recovery is going to broaden out from what has so far been a China-, Asia-led global recovery,” said John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., the most accurate predictor for both currencies last year.

“We’re forecasting parity for the Aussie dollar, and we actually think the Canadian dollar will go through parity” by March, he said. The bank is the most bullish of last year’s most accurate forecasters on the two currencies, predicting gains of about 11 percent for each by Sept. 30.

Most Since 2007

The Australian dollar rose 0.7 percent to 93.16 U.S. cents as of 2:15 p.m. in Sydney and was 2009’s third-best performer among the 16 most-traded currencies. Canada’s loonie, nicknamed for the aquatic bird on its dollar coin, advanced 0.4 percent to C$1.0260, after gaining the most since 2007 last year.

IntercontinentalExchange Inc.’s Dollar Index -- a gauge against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona -- has rallied 3.7 percent since Nov. 25 after a 16.7 percent slide from 2009’s March 5 closing high.

Three of the four best loonie forecasters in 2009 -- National Australia, Royal Bank of Scotland Group Plc, JPMorgan Chase & Co. -- predict parity by June 30; the other, Canadian Imperial Bank of Commerce, sees it there by Dec. 31.

As for the best Aussie predictors, National Australia says that currency will equal the greenback by March 31; CIBC sees it there by year-end; JPMorgan estimates it will be stronger than parity in the second quarter and Commonwealth Bank of Australia is calling for it to stop 2 cents short of one U.S. dollar.

Biggest Gains

Of the most active currencies, the Aussie, loonie, Brazilian real, Norwegian Krone, South African rand and New Zealand dollar, known as commodity currencies, posted 2009’s biggest gains against the dollar. The Reuters/Jefferies CRB Index of raw material prices had its best performance since 1979, gaining 23.5 percent.

History shows that a U.S. recovery coincides with increases in commodities, the Aussie and loonie.

After the U.S. came out of the 2001 recession, the currencies rose 48 percent and 23 percent, respectively, in the two years ending with 2003 as the world’s biggest economy expanded almost 6 percent. After falling 31 percent in 2001, the Standard & Poor’s GSCI Index of 24 commodities rose 39 percent and 11 percent in the next two years.

The Australian and Canadian dollars have rallied about 49 percent and 27 percent from last year’s lows as U.S. growth rebounded to 2.2 percent in the third quarter after shrinking 6.4 percent in the first.

Economic Forecasts

The U.S. economy’s expansion will accelerate to 2.6 percent in 2010, compared to 3.1 percent for Australia and 2.55 percent for Canada, according to the median estimates in Bloomberg economist surveys. Goldman Sachs Group Inc. predicts the S&P GSCI Enhanced Total Return Index of commodities will gain 17.5 percent this year.

“A lot of the Canadian dollar gains up to now have been happening in the absence of strong growth in the U.S.,” said Tihanyi of Bank of Nova Scotia. “Through this year, you’re going to see growth come back to what you might see in a normal year, and along with that you’re going to see a pickup in trade and demand for Canadian products.” Canada’s third-largest lender forecasts parity by June 30.

The Canadian dollar rose versus the greenback for a fourth day on Jan. 5, when the U.S. Commerce Department reported that automakers increased sales in December. The loonie climbed again the next day for its longest winning streak in two months.

Record Lending

The Canadian and Australian dollars are gaining support from the global recovery as China’s central bank tries to curb record lending. The nation may have exceeded its 8 percent growth target for 2009 by 0.5 percentage point, said Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, in a Jan. 5 statement.

Commonwealth Bank of Australia, among the five most- accurate forecasters for the Aussie and loonie, expects both currencies to end 2010 short of parity after peaking in the second quarter as Federal Reserve interest-rate increases add to the greenback’s appeal. Median Bloomberg survey forecasts see the Australian dollar falling 3.4 percent by Dec. 31 as the Canadian currency drops 5 percent.

“The U.S. dollar will strengthen in anticipation of rate hikes,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank.

Canadian policy makers will warn traders against pushing the loonie higher to prevent damage to the economy, said Sebastien Galy, a foreign-exchange strategist at BNP Paribas SA in New York.

‘Pretty Vociferous’

“The problem with the Canadian dollar is the reaction function of the central bank; they’ve been pretty vociferous about talking down the currency,” Galy said.

Seven days after the loonie reached C$1.0207 on Oct. 15, its closest brush with parity since July 2008, Bank of Canada Governor Mark Carney said action to weaken the currency “is always an option.” Within two weeks, it fell 6.1 percent to a one-month low of C$1.0870. Measured in U.S. cents, Canada’s dollar hit 97.97 before falling to 92.

For the Aussie, the risk is a pause in rate increases. Reserve Bank of Australia Deputy Governor Ric Battellino described its monetary policy on Dec. 16 as “back in the normal range” because lenders had raised rates more than the policy makers had.

Weighing on Aussies

“Any paring back of those interest-rate hike expectations will weigh on the Aussie,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, who sees the currency peaking at 93 U.S. cents. “A sooner and stronger-than- expected recovery in the U.S. is going to benefit Canada more than the likes of Aussie.”

Currency strategists have pushed up first-quarter forecasts for the Australian dollar, with the median prediction now at 93 U.S. cents, from 65 cents in March, more than estimates for the New Zealand dollar, real, krone, ruble and Canadian dollar.

Futures traders are becoming more bullish about the loonie and Aussie even as they increase bets on the U.S. dollar, data from the U.S. Commodity Futures Trading Commission show. Contracts profiting from gains against the greenback outnumbered bearish wagers by more than 40,000 on each currency last week, the most in five weeks for the Aussie and 10 for the loonie.

Investors had an unprecedented 51,050 bets that the Dollar Index would rise as of Dec. 29, according to the CFTC data. Even after such wagers fell to 48,623 last week, bullish contracts outnumbered bearish ones by more than 5 to 1, the most since March, when the dollar started last year’s slide.

Major Exports

Canada sits on the largest pool of oil reserves outside the Middle East. The nation is also the world’s third-largest exporter of natural gas after Russia and the U.S., according to the Energy Information Administration.

Australia is the biggest shipper of iron ore and coal. Merchandise exports to China, the nation’s largest trading partner, grew 29 percent in 2009’s first 11 months from the same period in 2008. Australia also sells gold, crude oil and liquefied natural gas.

The Aussie and the loonie last traded at parity together in 1976, before the November election of a secessionist Parti Quebecois government in Quebec helped trigger “a protracted selloff” in the Canadian dollar, according to James Powell’s “A History of the Canadian Dollar” on the Bank of Canada’s Web site.

Past Parity

The loonie most recently had the same value as an American dollar in July 2008 after rising to that level in September 2007 for the first time in three decades. It hit its strongest level of 90.58 Canadian cents per U.S. dollar two months later. The Aussie last reached parity in 1982, before the government allowed it to float freely the following year.

With the U.S. dollar showing renewed strength, Barclays Plc’s wealth management unit is advising investors to maximize returns on bets that the Aussie and loonie will rise along with commodity prices by purchasing the currencies with yen.

“If you had to pick a country in the world that’s most short of commodities, it’s Japan,” said Aaron Gurwitz head of global investment strategy at Barclays Wealth in New York.

To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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Rice Export Prices Unlikely to Decline, Mohanty Says

By Luzi Ann Javier

Jan. 11 (Bloomberg) -- Rice export prices will probably be sustained at about $600 per metric ton after drought and floods damaged crops in India and the Philippines, an agricultural economist said. Rice futures rallied in Chicago.

“It is safe to say that the rice price is not going back to $300 per ton any time soon and is likely to remain around $600 in the near term,” Samarendu Mohanty, a senior economist at the International Rice Research Institute, said in a report to be published today, without citing a definite time frame.

The Asian rice price benchmark jumped to $607 per ton in Thailand last week from 2009’s low of $525 as the Philippines, the world’s biggest importer, advanced purchases and on concern India may become a net importer after a drought parched crops last year. The grain has averaged $616 since Dec. 2, according to Bloomberg data.

Higher costs for the staple for half the world’s population may push more people in least developed nations into hunger and some Asian governments may be forced to subsidize rice, widening their budget deficits, Frederic Neumann, senior Asia economist at HSBC Holdings Plc., said by phone from Hong Kong.

“One thing we saw in 2008 is that a gradual increase may well turn into a sudden spike and this could lead to political challenges further down the road,” he said.

Rice rose to a record in Chicago in April 2008 and the Asian benchmark export prices jumped to their highest level ever a month later, after India and other exporting countries curbed shipments, adding to concerns of shortages that sparked riots from Haiti to Egypt.

Import Tenders

The Philippines may need to buy between 500,000 and 1 million tons overseas, adding to purchases from tenders last quarter, the U.S. Rice Producers’ Association said in a report published Jan. 8. State-run National Food Authority purchased about 2.2 million tons of overseas supplies in the tenders for delivery this year, spokesman Rex Estoperez said last week.

Rice futures in Chicago have jumped 34 percent from last year’s low of $11.195 per 100 pounds. The March-delivery contract rose for the first time in five sessions, gaining as much as 1 percent to $15.10 in after-hours trading in Chicago, reversing a 0.5 percent loss earlier.

Futures may rise to $16 per 100 pounds in the next three months as the Philippines remains in the import market, Peter McGuire, managing director at CWA Global Markets Pty, said by phone from Sydney today.

Global rice stockpiles are forecast to decline 2.7 percent to 121.1 million tons at the end of the 2009-2010 season because of smaller crops in countries including India, the Philippines, Iraq, Nepal, and Pakistan, the UN Food and Agriculture Organization said last month.

Global Stockpiles

Still, the global inventory will be higher than the 110.8 million tons in the 2007-2008 season, the FAO said.

“Unfortunately, most of these additional stocks, with the exception of Thailand, will not be available to the market in case prices start to rise,” Mohanty said in the report sent to Bloomberg News by e-mail.

India’s government will have 42 million tons available for sale to the poor in the marketing year ending March 31, against a requirement of 25 million tons, the U.S. Department of Agriculture’s Foreign Agricultural Service said last month.

Stockpiles in India “should provide much-needed relief to the market,” because it will mean the South Asian nation does “not need to turn to imports,” Mohanty said.

India, the world’s second-biggest producer, may harvest 71.65 million tons of the monsoon-sown rice, higher than the 69.45 million tons forecast in November, the government said last month. Warehouses held 15.35 million tons on Oct. 1, the start of the new marketing year, the government said Jan. 5.

India Imports

“Regardless of the press from the Indian government, the belief is widespread throughout the rice trade that something between 2 and 3 million tons of imported rice will be bought there sometime in the next three months,” the U.S. Rice Producers said.

A purchase in excess of 2 million tons by India will make the South Asian nation a net importer for the first time in more than two decades. India, which ships higher-value basmati rice, was forecast by the U.S. Department of Agriculture last month to export 2 million tons this year.

“We see the human and political imperative there to make this unavoidable,” U.S. Rice Producers said, referring to India importing as much as 3 million tons. “It is difficult to see prices falling much, if any, given the world situation.”

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Dollar Slides to 3-Week Low on U.S. Jobs Report, Global Growth

By Bo Nielsen and Ron Harui

Jan. 11 (Bloomberg) -- The dollar fell to a three-week low against the euro as traders pared bets that the Federal Reserve will bring forward interest rate increases after last week’s weaker-than-expected U.S. jobs report.

The dollar declined against 15 of the 16 most-traded currencies tracked by Bloomberg after Reserve Bank of St. Louis President James Bullard signaled rates may remain low for some time. The Australian dollar rose to the strongest level in five weeks versus the greenback after a Chinese report yesterday showed exports climbed for the first time in 14 months.

“The payrolls report doesn’t change the big picture of U.S. recovery, but it pushed out the start of Fed tightening, and that has made some people change their positions,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “As long as the U.S. data doesn’t deteriorate sharply, risk appetite will do fine and we’ll see a generally weaker dollar.”

The dollar dropped to $1.4512 per euro as of 9:44 a.m. in London from $1.4409 in New York last week, after declining to $1.4535, the weakest since Dec. 17. The U.S. currency slid to 92.35 yen from 92.66 yen. The yen fell to 134.04 per euro from 133.46.

China’s customs bureau said on its Web site yesterday that exports rose a greater-than-expected 17.7 percent in December from a year earlier and imports surged 55.9 percent.

Commodity Currencies

Australia’s dollar advanced 0.7 percent to 93.12 U.S. cents, after climbing to 93.20, the highest since Dec. 3. China is the world’s biggest buyer of iron ore, while Australia is the biggest exporter of the material.

New Zealand’s dollar rose 0.4 percent to 73.98 cents. The Canadian dollar advanced 0.5 percent to 97.33 U.S. cents and reached 97.53 cents, the highest since Oct. 15.

“The China data keeps alive the view that the emerging market economies will drive economic activity with the U.S. and the euro-zone lagging behind,” Derek Halpenny, the European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note clients today.

Futures on the Chicago Board of Trade show a 34 percent chance the U.S. central bank will raise its zero to 0.25 percent target lending rate by at least a quarter-percentage point by June, down from 60 percent odds a week earlier. The Labor Department said on Jan. 8 employers unexpectedly cut 85,000 jobs in December, compared with economists’ forecasts for no change.

U.S. benchmark interest rates compare with 0.1 percent in Japan, 3.75 percent in Australia and 2.5 percent in New Zealand, attracting investors to the South Pacific nations’ assets.

‘Sluggish Recovery’

The U.S. jobs report “fits into a pattern of a choppy and sluggish recovery marked by an underlying improvement but with invariable setbacks,” Michael Hart, a Citigroup Inc. currency analyst in London wrote in a research report today. “The dollar sold off in response, in line with a recent pattern that saw it increasingly de-link from successive risk waves.”

The Fed’s near-zero interest-rate policy is “on hold” for now, Bullard said in Shanghai today. He also didn’t see the fed’s liquidity increase as inflationary.

The Dollar Index, which the ICE futures exchange uses to track the greenback against currencies of six major U.S. trading partners including the euro, declined for a second day, losing 0.5 percent.

The Swiss franc weakened versus the euro after central bank President Philipp Hildebrand said the bank will continue to prevent “any excessive appreciation” of the currency.

The Swiss National Bank doesn’t have an exchange-rate target but will “monitor foreign exchange market developments very closely,” Hildebrand, who became head of the central bank on Jan. 1, said in a statement issued in Zurich today.

Loonie, Aussie Parity

The franc weakened to as low as 1.4795 per euro from 1.4753 yesterday and later traded at 1.4775.

The Canadian and Australian dollars will rise to trade at parity or better with the greenback together in 2010 for the first time in 34 years, appreciating at least 3 percent and 8 percent, three of last year’s four best forecasters for both currencies say.

Traders are favoring the so-called loonie and Aussie over the dollar on the Chicago Mercantile Exchange even while betting more than ever on the Dollar Index advancing.

Accelerating U.S. growth will spur demand for Canadian oil and natural gas as China’s expansion boosts purchases of Australian iron ore and coal, pushing both currencies higher, said Sacha Tihanyi, a foreign exchange strategist in Toronto at Bank of Nova Scotia. The loonie and Aussie both rose last week even as the People’s Bank of China took steps to curb lending.

“The global economy is going to strengthen, and the recovery is going to broaden out from what has so far been a China-, Asia-led global recovery,” said John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., the most accurate predictor for both currencies last year.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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