FX Update: Risk off in Asia as Japan’s nuclear situation deteriorates

The Asian session kicked off with news of a fire at the Fukushima nuclear plant and talk that the severity of the situation was likely to be upgraded to the worst level on the international scale. That was enough to knock risk back and enable the greenback to build on the slight gains made yesterday with JPY a major beneficiary from the carry trade unwind , the CHF from safe-haven status. AUDJPY was down over 2% in the session, EURJPY down 1.5%.

Earlier in the session we saw the release of U.K. BRC like-for-like sales which fell 3.5% y/y in March, the steepest fall since April 2005, as rising inflation squeezed household spending and uncertainty about jobs prompted more caution from consumers. U.K. house prices were marginally better than expected and showed continued small improvement from the October low. However, at -23% it still suggests that the U.K. housing market is facing many headwinds. GBP was in general retreat in line with the “risk off” trade.

Overnight, it was a relatively calm session for most major currencies with the U.S. dollar able to post a slight rebound from last week’s sell-off, partly from a delayed reaction to the U.S. budget outcome and partly from chatter of a possible African Union brokered ceasefire in Libya. Crude prices reacted most to this possibility, with oil prices falling some $4 p/barrel and gold sliding $10. This forced a retreat in the commodity currencies with AUDUSD easing back below 1.05. CAD was also softer ahead of today’s Bank of Canada rate meeting where an unchanged decision is expected.

There was no U.S. data to sway markets and the Federal Reserve’s Yellen and Dudley delivered the expected dovish comments – both saying it was too soon to unwind the easy money stance and downplayed the effect of rising commodity prices on inflation, suggesting it will on be a transitory impact. Wall St was mixed, with sliding oil prices taking its toll on the energy sector though after the bell Alcoa reported Q1 profits that beat estimates and commented that the outlook for the rest of 2011 remains positive. However, revenues were below estimates and this may be an unfolding scenario during this Q1 reporting season.

Heading in Europe we can expect CPI data from Germany and Sweden together with U.K. DCLG house prices, trade data and CPI numbers (estimates suggest an unchanged reading of +4.4% y/y, though firmer PPI data last Friday may imply upside vulnerability). The session closes with German ZEW surveys. North America features speeches from ECB’s Stark and Fed’s Dudley along with U.S. small business optimism, IBD/TIPP economic optimism, trade data and Canada’s house prices, trade balance and import prices while not forgetting the afore-mentioned Bank of Canada meeting.

Economic Data Highlights

• UK Mar. BRC Sales Like-for-like out at -3.5% y/y vs. -0.4% prior
• UK Mar. RICS House Price Balance out at -23% vs. -24% expected and -26% prior
• JP Mar. M2 Money Stock out at +2.7% y/y vs. 2.5% expected and 2.4% prior
• JP Mar. M3 Money Stock out at +2.0% y/y vs. 1.9% expected and 1.8% prior
• JP Mar. Bank Lending out at -1.7% y/y vs. revised -1.9% prior
• NZ Mar. QV House Prices out at -2.0% y/y vs. -1.7% prior
• AU Mar. NAB Business Conditions out at +9 vs. -2 prior
• AU Mar. NAB Business Confidence out at +9 vs. +14 prior

Upcoming Economic Calendar Highlights
(All Times GMT)

• GE CPI (0600)
• JP Machine Tool Orders (0600)
• Sweden CPI (0730)
• Sweden Unemployment Rate (0800)
• UK DCLG House Prices (0830)
• UK Trade Balance (0830)
• UK CPI (0830)
• GE ZEW Surveys (0900)
• EU ZEW Surveys (0900)
• US Fed’s Dudley to speak (1015)
• EU ECB’s Stark to speak (1040)
• US NFIB Small Business Optimism (1130)
• CA New Housing Price Index (1230)
• CA Int’l Merchandise Trade (1230)
• US Import Price Index (1230)
• US Trade Balance (1230)
• CA BOC Rate Announcement (1300)
• US Fed’s Hoenig to speak (1315)
• US IBD/TIPP Economic Optimism (1400)