A government report showing an unexpected slowdown of the Canadian economy during the first quarter sent the Canadian dollar on a downward trail for more than three weeks. This brought about speculation that the central bank will be paring down lending rates next month.

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The Canadian dollar came down hard as the weakness of the US economy spills over the border. The central bank of Canada has cut, by a half-percentage point, the target lending rate to 3 percent on April 22. Since December, borrowing costs have been pared down no less than four times from 4.5 percent. Policy makers will decide in a meeting June 10 as to what the new rates will be.

The Canadian currency, or the loonie, devalued 0.8 percent to 99.50 Canadian cents against the US dollar from 98.77 yesterday. Having declined 0.5 percent, the currency now buys $1.0052.

“It’s a bit of a shock for investors. A weakening economy plays into the current concerns that the U.S. slowdown is severely affecting Canada,” said senior currency strategist Matthew Strauss, RBC Capital Markets, Toronto.

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The US dollar is approaching a rate of 108.62 yen. It’s just a matter of time before it closes beyond what is called resistance at 105.70 yen that will allow the US currency to attain a three-month high versus the Japanese yen, as reported by Citigroup Global Markets Inc.

As shown by Citigroup’s chart, the 108.62 yen resistance level pertains to February 14 high. This is quite near the vicinity of the 200-day moving average, which is at 108.75 yen today.

What is resistance at 105.70 yen? This simply pertains to Citigroup’s May 2 high chart reading. Resistance is where you cluster or group together sell orders.

This week, the US dollar strengthened by 2.1 percent to 105.56 yen. Since April 18, this was the currency’s biggest ever gain in a week’s time. Yesterday, the US dollar was able to attain 105.87. As regards monthly gain, the US currency, since April, has risen by 1.6 percent.

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The US dollar advanced two months in a row versus the euro, mainly because of soaring US stocks that brought signs of better economic conditions, boosting investor confidence and making US assets more attractive.

The US dollar greatly improved against its major counterparts after a government report revealed that personal income in the US has strengthened tremendously in April beyond analysts’ expectations. Incomes improved by 0.2 percent, partly because of the government’s tax rebates that came after an increase by 0.4 percent the previous month.

Another reason why the dollar has soared against the euro lately is the sudden and unexpected drop in Germany’s retail sales in April. Germany, by the way, is Europe’s biggest economy.

The US dollar meanwhile traded high against the yen on speculation that the Federal Reserve will be hiking interest rates late in 2008.

“The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike. That has given the dollar a boost,” according to head of international currency strategy Alan Ruskin, RBS Greenwich Capital Markets, Connecticut.

The US economy improved at a 0.9 percent annual pace the previous quarter, higher than April 30’s 0.6 percent estimate by the Commerce Department, according to government report. Except for transportation equipment, there’s also been a 2.5 percent rise in US durable goods orders in April.

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Declining prices of export commodities and signs of slowing economic growth drive both the Australian and New Zealand dollars low this week.

The Australia currency or the Aussie declined to 95.58 versus the US dollar in Sydney today. Yesterday, the Aussie was valued at 95.94 cents and was at 95.92 the previous week. The Australian dollar climbed 8.8 percent in 2008, and on May 22 was valued, its strongest since 1983, at 96.54 cents.

Meanwhile, the New Zealand dollar plunged to 78.06 US cents. It was valued at 78.24 yesterday in Asian trading and traded at 78.50 cents the previous week in New York. The Kiwi declined for three months now, slowing down the currency’s advance to just 1 percent in 2008.

About 60 percent of Australian export is composed of raw materials that include gold and iron ore. On the other hand materials such as lumber comprise 70 percent of New Zealand’s export.

“There are concerns the countries’ economic expansion will cool. The worries may weigh on the Australian and New Zealand dollars,” according to currency strategist Lee Wai Tuck, Forecast Pte Ltd., Singapore.

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The Australian dollar’s advance versus the US dollar was cut short after the decline in gold price. Gold being Australia’s third most valuable export has greatly affected the value of the country’s currency.

The Australian dollar declined as gold futures lost as much as 1.9 percent, the largest ever percentage decline since April 29. About 17 percent of the Australian economy comes from raw materials exports.

The decline in Australian dollar has eradicated this week’s gains that rendered the outlook for economic growth bleak.

The Australian dollar rallied at 96.13 U.S. cents from the previous day’s 96.16 cents and also from 96.54 cents, which is a 25-year high, on May 22. Analysts however believe that the Australian dollar will plummet to about 90 cents within six months. Meanwhile, the Aussie traded 100.02 yen from 99.78 yen.

“I have a problem with the Australian dollar up at these levels and I just don’t see the logic in buying it. The commodity complex is not unambiguously positive for the currency,” said treasury strategist Peter Pontikis, Suncorp-Metway Ltd., Brisbane, Australia.

“It’s possible that people are looking for a reason to sell Aussie. But, from what I see of those headlines, it actually looks pretty balanced. There’s been a significant move, and that’s just a statement of fact,” said senior currency strategist Sean Callow, Westpac Banking Corp., Sydney.

The euro is expected to increase against the Japanese yen for as much as 164.46 next week according to price chart technical analysis, said technical analyst Pak Lai Ng, Forecast Singapore Pte.

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The euro has early on began to show signs that it is on its way up, strongly revealing a buy signal in the charts.

Resistance has been calculated at 164.46 yen, using a downward-sloping trend line. The euro yielded a record high of 168.99 yen on July 23 showing successive peaks in October, November, December and April.

Overall, the scenario reveals a currency that is rapidly rising, showing a positive structure and bullishness. The euro traded against the yen at 163.22 from 163 yesterday that translates to about 0.5 percent increase this month.

What MACD charts do is indicate whether or not shift in price also translates to a change in trend or a short-term deviation. The mechanics involve comparison between moving averages based on 9-, 12- and 26-day periods.

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The South Korean won turned out last among 23 other Asian counterparts as heavy loses take its toll on the currency due to record high oil prices. This just goes to show how sensitive the South Korean economy is to changes in oil prices

The Korean won’s steep decline went beyond the 10 percent mark versus the US dollar as we approach the middle of 2008. This decline marks the worst performance of the South Korean currency ever compared to its 16 actively traded counterparts in the midst of surging oil futures that reached $135.09 all time high on May 22. In stark contrast, during the previous year the South Korean won more than doubled in value.

For the first time in 11 years, the Bank of Korea’s forecast of the country’s current accounts this year reveal a sizeable deficit.

The won, however, rallied higher two days in a row on hunch that the central bank will be buying the won to prevent the currency’s recent decline from escalating costs of importation and to curb the accelerating inflation. The won increased by 0.3 percent against 1,034.40 US dollar today, as reported by Seoul Money Brokerage Services Ltd.

“Korea’s external current account balance is weak, unlike other countries in the region. his severely limits the ability of the government to strengthen the currency even if it wants to use a stronger won as a main tool to fight inflation,” said economist Kwon Goohoon, Goldman Sach, in Seoul.

South Korea imports 97 percent of its energy needs and ranks fifth among the world’s biggest oil importers. What we can see now is a widening current account deficit that’s really hurting the country’s economy. To date the deficit stands at $5.2 billion as compared to $1.7 billion the previous year.

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The Japanese yen succumbs to the euro as escalating stocks prompted traders to add higher-yielding assets to their yen funded holdings. Against the Australian dollar, the Japanese yen also performed poorly, at a three-month low against the Australian dollar, which is a favorite for what is called carry trades, as prices of crude oil plunged a second day. Meanwhile, the US dollar rallied almost at the highest level in a week versus the euro.

The Japanese yen traded at 164.11 against the euro today in New York and from as low as 164.27, from 163.58 the previous day. The Japanese yen stood at 104.62 to the US dollar, from a previous rally at 104.24. The US dollar traded at $1.5689 against the euro, from $1.5691.

The Japanese currency has seen its weakest as it fell to 100.28 against the Aussie. Against the New Zealand’s dollar, however, it held at 82.18 from a value of 82.29.

“S&P futures were down before and now they are up slightly. People are eager to put on carry trades and the dollar is generally firmer.” Said senior currency strategist Adrian Schmidt, Royal Bank of Scotland Group Plc, London.

So, just what takes place during a carry trade? Investors generally obtain financing in a country that has a cheaper borrowing rate and use the funds where the rates are higher, profiting from their difference. Among major economies, Japan holds the lowest borrowing rate at 0.5 percent.

The US dollar is once more on another downward trail as it traded low versus the euro on bets that the government will reveal a report showing that the housing market has worsened and created pessimism among consumers.

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The US dollar declined against its Canadian counterpart, hovering close to a 25-year low versus the Aussie (Australian dollar) as prices of gold and oil surged, improving commodity exporters’ outlook. Traders speculated that the Federal Reserve will be increasing rates within this year, after the rate-cutting spree by the Feds , which actually occurred seven times, since September as the European Central Bank left their rates unchanged.

The US dollar declined by as much as $1.0112 versus the Canadian dollar from $1.0102. Against the New Zealand dollar however, the US dollar traded at 78.57 cents per New Zealand dollar from an earlier 78.50.

The US currency slipped to 96.00 cents against the Australian dollar from an earlier rally of 95.92. The July delivery for Crude oil increased by 0.6 percent to $132.95 per barrel, as we see gold appreciates 0.2 percent that extended the 2.5 percent gains last week.

“The dollar will keep sliding amid the slowing U.S. economy. Weaker data will force the Federal Reserve to lower interest rates further,” said senior vice president of currency sales Michiyoshi Kato, Mizuho Corporate Bank Ltd., Tokyo.

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The Australian dollar has rallied to almost the highest level the currency has attained in 25 years based on a hunch that the central bank will be hiking again interest rates in 2008. Meanwhile, the New Zealand dollar rallied its strongest for about a couple of weeks or more.

For approximately four weeks the Aussie extended gains versus its American counterpart as word leaked out that policy makers are seriously studying the possibility of a 7.25 percent benchmark rate increase. However, the gain in the Australian dollar was less than what has been expected considering the ever increasing prices of commodity. The stronger Aussie has also stabilized the prices of import for consumers, as revealed by Treasury Secretary Ken Henry.

“It’s a point the Australian Treasury and the RBA have been making that the Australian dollar has significantly underperformed the improvement in its terms of trade,” said foreign-exchange research director Ray Attrill, Forecast Ltd., Sydney.

The Aussie rallied against the US dollar at 96.14 U.S. cents. Previously the currency traded at 95.92 cents on May 23, surging to record high of 96.54 cents on May 22, but was hardly changed against the Japanese yen at 99.27 from 99.17.

“You could even think of levels like $1.10 and $1.20 as not being inconceivable with the medium-term fundamental story that is unfolding here,” Attrill said further.