Money and Metals

The big news today was a move by China. "The Canadian dollar fell sharply against the U.S. currency on Friday on rising concerns about future demand for commodities, after China's central bank decided to increase its reserve requirement. Much of the currency's fall came after China decided to curb the rapid credit growth that Beijing fears could cause the red-hot economy to overheat."

"China raised the proportion of money banks must keep in their reserves by half a percentage point, effective July 5. 'That's one of the reasons for the Canadian dollar weakness,' said Carolyn Kwan, markets economist at Scotia Capital. 'It is one of the weakest, if not the weakest of all the major currencies today.'"

"China's move is 'signaling their concerns that the economy is operating really too strongly,' Kwan said. There has been a lot of loans made by Chinese banks and I think that it has grown at such a pace that the authorities feel that there is a need to really contain that somewhat."

"Raising the reserve requirements will take money out of China's economy and could have an impact on its huge appetite for commodities, she said."

"The Canadian dollar was also hit by the U.S. dollar's momentum after data pointed to an unexpected rise in U.S. consumer sentiment this month. The University of Michigan survey showed consumer sentiment rose in early June, beating expectations for an unchanged reading."

"The US dollar traded mixed against other major currencies Friday after new data showed the trade deficit narrowing in the first three months of this year. The euro bought $1.2635 in afternoon New York trading, up from $1.2609 in New York late Thursday. The British pound also rose to $1.8503 from $1.8472."

"The dollar edged up against the Japanese currency, rising to 115.09 yen from 115.00 in New York. In other trading, the dollar bought 1.2313 Swiss francs, down from 1.2326 late Thursday."

"The Commerce Department reported Friday that America's current account trade deficit fell to $208.7 billion in the January-March quarter, down 6.5 percent from a record $223.1 billion deficit set in the final three months of last year. Although the improvement exceeded expectations, the quarterly deficit still remains at the second highest level on record."

"Analysts also predict rising oil prices to send the deficit in the current quarter to a new high, and they forecast that the imbalance for all of 2006 is on track to set a record for a fifth straight year."

"Gold surged 3.3 percent on Friday on dollar weakness and firm oil prices, but pared gains in the afternoon trade as some investors sold their positions ahead of the weekend. Gold remained under threat and may slip, as people were not yet convinced the recent downtrend is over, analysts said."

"'The majority of trading has been done this week. I think we will have a quiet close to the week,' said a precious metals trader in London."

"Gold rose as high as $585.00 an ounce before easing to $574.30/575.00 by 1352 GMT, against $566.50/$567.50 in late New York on Thursday, when it jumped as much as three percent."

"Traders said there was no impact of China news on precious metal prices. 'Overall, I see precious metals to remain vulnerable in the short-term. however, I don't expect it to test new lows since physical demand and bargain-hunting should provide some support,' said another European dealer."

"In other precious metals, silver advanced as high as $10.35 an ounce before falling to $10.05/$10.15, compared with $10.00/10.10 late in New York. Platinum fell to $1,157/1,163 an ounce from $1,160/1,170, while palladium rose to $301/309, compared with $295/$300 in the U.S. market."