Money and Metals

Some reports on what's moving the markets. "The dollar fell after government reports on inflation and housing starts boosted speculation the U.S. economy is slowing enough for the Federal Reserve to stop raising interest rates. 'Both give credence to the Fed taking a pause in June and having less of a need to tighten rates in the second half of the year,' said Tim Mazanec, senior currency strategist at Investors Bank & Trust. 'The dollar is going to weaken.'"

"The dollar fell to $1.2853 against the euro at 8:59 a.m. in New York, from 1.2796 yesterday. The U.S. currency dropped to 109.90 yen, compared with 110.49 yesterday."

"'The inflation data is the key arbiter of what the Fed is going to do,' Sophia Drossos, a currency analyst at Morgan Stanley, said before the producer price report. 'If pressures are just temporary, the Fed will probably take the opportunity to pause in June. It still points to the downside for the dollar.'"

"Gold futures headed higher Tuesday morning as weakness in the U.S. dollar helped the metal recoup some of the more than $36 an ounce it lost in the past two sessions. 'Buoyed by short covering and scattered physical buying, gold made an honest effort to recover from Monday's slump,' said Jon Nadler. 'It did not take much for the dollar to resume its downward spiral, as structural imbalances continue to put doubts into the minds of its would-be holders,' said Nadler."

"Peter Grandich said he believes 'the correction appears to have more work left to be done on the downside.'"

"Gold for June delivery rose $8.50 to $693.50 an ounce on the New York Mercantile Exchange after reaching a high of $690.90. July silver tacked on 6.5 cents to trade at $13.40 an ounce after losing more than 6% on Monday. July copper added 8.5 cents to $3.755 a pound. June palladium was up $2.25 at $377 an ounce and July platinum climbed $19.20 to $1,304 an ounce."

"The Canadian dollar rose against the U.S. dollar on Tuesday. At 9:01 a.m. (13:01 GMT), the currency was at C$1.1087 to the U.S. dollar, or 90.19 U.S. cents, up from C$1.1136 to the U.S. dollar, or 89.80 U.S. cents, at Monday's close."

"'The market is going to reinforce the view that the Fed's on pause, given the steep decline in housing starts and core producer prices,' said Beata Caranci, an economist at TD Securities. 'So it would widen the spread diversions between Canada and the U.S. with Canada still biased toward another 25 basis points, so that's a net positive for the (Canadian) dollar.'"

"China's official exchange rate weakened significantly on Tuesday, the central bank announced, defying a gain the day before that helped break through the psychologically important 8 yuan per U.S. dollar level. The dollar, measured by the central parity rate announced by the People's Bank of China (PBoC) before the market opens each business day,bounced back to 8.0150 yuan. The yuan depreciated by 168 basis points, the biggest day-on-day decline since a revaluation reform last July."

"At a time when international currency tensions are at their highest in two decades, Japan's Finance Minister Sadakazu Tanigaki has defied American warnings to stop jaw-boning the US dollar. Mr Tanigaki yesterday addressed the touchy issue of currency intervention when he told an Upper House finance affairs committee that Japan's $US860 billion ($1.13 trillion) foreign currency reserves were 'set aside for intervention in the future.'"

"'We can be ready for such an occasion to use them, but I would not comment how high such a possibility can be.'"

"Mr Tanigaki said the Bank of Japan's vast holdings of US Treasuries could be sold in future to fund intervention operations. However it's doubtful he was considering the current environment because a T-bond sell-off would further destabilise the US dollar, which is precisely what Mr Tanigaki does not want."

"Washington tried to engineer a currency easing in 2003, in spite of the overt commitment to the so-called 'strong dollar policy' that continues today, but was frustrated by a massive Japanese campaign to buy US dollars. During Mr Tanigaki's first seven months as Finance Minister, the BoJ bought more than $US200 billion. After intense pressure from the Americans and Europeans, the BoJ quit the market in March 2004 and has not returned."

"US Treasury officials have tried since the G7 finance ministers meeting on April 21 to persuade Mr Tanigaki to stop his 'verbal interventions' to prop the greenback. The G7 communique called for greater 'exchange rate flexibility' from Asian economies, though only China was named."