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On a side note, I am kicking myself for not posting an official call because the moves have become deeply oversold in these currencies. However I think USD/CAD is going test parity (currently at 1.0105) and EUR/GBP is could fall to at least 0.8915 (now 0.8975).

FOMC Statement March 16, 2010

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing ( upgraded “from deterioration in the labor market is abating”). Household spending is expanding at a moderate rate but remains constrained by high unemployment ( upgraded from weak labor market), modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly ( upgraded from appears to be picking up). However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level( concern about housing returns) , and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period ( here are the words again). To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month ( Fed ending asset purchases). The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability ( New!).

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral ( Fed ends liquidity facilities!).

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability ( Hoenig elaborates on dissent).

After hitting a 9 year high of 1.3124 last week, the rally in AUD/NZD is losing steam. I should have posted about this earlier, but I think there is still room for the currency pair to fall.

Last week, the Reserve Bank of Australia raised interest rates by 25bp to 4 percent but hinted that from here on forward, they will begin to slow down their pace of tightening. Having already doled out 80 to 90 percent of their planned rate hikes, the focus will now turn to the RBNZ who has not even started to raise interest rates. Granted, the Australian economy is doing far better than the New Zealand economy, it is time for New Zealand to catch up. In January, New Zealand turned its first trade surplus after 7 months of consecutive deficits and in February, business confidence hit a 10 year high. Yes my friends, a TEN YEAR HIGH. With numbers as strong as these, the Reserve Bank of New Zealand will most likely grow more hawkish, paving the way for a rate hike later this year.

Furthermore, 25% of New Zealand’s exports go to China and 25% go to Australia. Therefore the combination of higher commodity prices and strong growth in NZ’s most important trade partners should encourage the RBNZ to adopt a more optimistic tone when they meet later this week.

Finally AUD/NZD presents a good risk reward opportunity from a technical basis. It is currently trading at 1.2975 and if it rallies back above 1.31, the uptrend has resumed. Otherwise, there is no major support in AUD/NZD until 1.2775

There has been alot of analysis published on the NFP number including including ours on FX360.com. One thing that I do want to point out is that the blizzards took away slightly more than a million jobs which means that next month’s report should reveal a big jump in job growth.

Instead I thought it would be interesting to look at where the levels of employment and unemployment are for men and women. This data, calculated from the Bureau of Labor Statistic’s information is based upon the seasonally adjustment numbers for men and women over the age of 20. There are more men than women in the labor force but we have two scales on our charts to make the comparison between the rate of change easier.

The U.S. recession began in December 2007 and the number of employed men have fallen by 6 percent while the number of employed women have fallen by 2 percent since then. The level of unemployment amongst men has risen by 123 percent while unemployment for women have risen by 85 percent.

Earlier this month, Summers came out of no where to warn that “The blizzards that affected much of the country during the last month are likely to distort the statistics.” This prompted economists to jump out and say that the snowstorms could inflate job losses by an extra 150,000 to 220,000.

Caroline Baum of Bloomberg did some fantastic investigative research on this and called the Bureau of Labor Statistics directly to find out what Summers really knew (or didn’t). According to her report:

The only people who know the numbers several days before the release work at the Bureau of Labor Statistics, according to Tom Nardone, assistant commissioner for current employment analysis at the BLS.

People in his office, which is responsible for the household survey from which the unemployment rate is derived, and in the office of Pat Getz, his counterpart on the payroll- survey side, compile the report and prepare the databases so everything is set to go at exactly 8:30 a.m. on the first Friday of the month (with an occasional exception).

Who Knows What

The report is provided to the White House Council of Economic Advisers on Thursday, according to Nardone. The Secretary of Labor is briefed at 8 a.m. Friday in a lock-down situation in an office with the BLS commissioner. The same goes for reporters in the press room, where contact with the outside world is suspended under BLS supervision.

“Larry Summers did not have the number when he made his comment,” Nardone said.

The entire process is laid out in the Office of Management and Budget’s Statistical Policy Directive No. 3: “Compilation, Release, and Evaluation of Principal Federal Economic Indicators,” revised on Sept. 25, 1985. The directive also specifies who has access to prerelease information (the president, through the CEA chairman) under strict security arrangements.

Here’s another really great point:

For the household survey, if you have a job and were absent in the reference week, you are counted as employed whether or not you were paid. The survey of establishments is a bit trickier. If you were paid for work you did in any part of the pay period that includes the 12th of the month, whether you worked or not, worked a full or reduced week, you are counted as employed, Nardone says. If you didn’t work that week but got paid, you’re still counted.

Only if you didn’t receive any pay for the entire pay period are you not counted as employed. (The federal government closed its Washington offices for four of five work days, and those folks got paid.)

What categories of workers would be affected? Primarily part-time workers and new hires as counted in the payroll survey.

What this means is that Summers did not have access to the NFP report before hand. His warning was based upon jobless claims and weather reports.

USD/JPY is trading off U.S. rates (yields) and not stocks. The following chart shows the strong relationship between USD/JPY and the 10 Year U.S. Treasury yield. This relationship holds for shorter term yields as well like the 2 year bond yield

If the video doesn’t load, watch it here Kathy’s Fox Business Interview