- The dollar fell versus its counterparts on Monday as risk appetite rose and stocks hit new cyclical highs. The Federal Reserve Bank of New York said it is assessing reversed repos to drain liquidity from the financial system is not a sign of an imminent rise in interest rates. US home builder confidence unexpectedly declined in October. The S&P 500 index rose 10.23 points to 1097.91 on earnings optimism and the indication from the NY Fed that liquidly will keep flowing from the central bank for the foreseeable future. After the close, Apple computer reported better-than-expected earnings. The yen rose on reports of an improving economic outlook in Japan. The euro advanced. Sterling climbed on increasing risk appetite and rising UK house prices after being pressured on news saying Bank of England Monetary Policy Committee member Adam Posen might support expanding quantitative easing policy. The Canadian dollar was supported by higher oil prices ahead of Tuesday's Bank of Canada interest-rate decision meeting. The BOC is expected to maintain its key interest rate at 0.25%.
- The AUD/USD rose to its highest level since August 5, 2008 as Reserve Bank of Australia Assistant Governor Philip Lowe said it is appropriate to remove stimulus as Australia's economy improves. The comment fueled speculation the RBA will raise interest rates again at its next meeting. The Australian dollar is also supported by China's strong economic growth. The AUD/USD is strongly correlated with the stock and commodity markets. Although overbought, the pair remains in a strong uptrend.
Financial and Economic News and Comments
US & Canada
- US builder confidence unexpectedly fell to 18 in October from 19 in September on increasing concerns that sales will curtail once the government's $8,000 tax credit for first-time home buyers expires at the end of November, according to the latest National Association of Home Builders/Wells Fargo housing market index. All three index components fell in October, the first fall since November 2008. The measure of current singlefamily home sales declined to 17 in October from 18 in September; the gauge of buyer traffic decreased to 14 from 17; and the measure of sales expectations for the next six months slid to 27 from 29.
- Foreign investment in Canadian securities totaled C$5.082 billion ($4.94 billion) in August after an upwardly revised C$370 million in July, showing foreigners invested in Canada's securities for an eight consecutive month, according to figures from Statistics Canada. Meanwhile, Canadian investors sold C$112 million of foreign securities in August.
- UK house prices rose 2.8% m/m in October, the largest October gain for 6 years, to £230,184 ($377,394), after a 0.6% m/m increase in September, Rightmove Plc reported. House prices advanced 0.2% y/y, following September's 1.5% y/y decline. House prices increased everywhere in England and Wales apart from the North and East Anglia. London house prices climbed 6.5% m/m in October, the most since records began in 2002, to £416,157, and rose 5.2% y/y.
- The tertiary industry activity index increased a more-than-expected 0.3% m/m to 97.1 in August after a 0.6% m/m gain in July, indicating the domestic service sector in Japan improved for a third consecutive month, data from the Ministry of Economy, Trade and Industry showed. The index declined 4.2% y/y.
- Japan's nationwide department store sales declined 7.8% y/y in September, easing from an 8.8% y/y decrease in August, while Tokyo department store sales dropped 10.5% y/y, deepening August's 10.3% y/y fall, the Japan Department Store Association reported.
- Bank of Japan policy board members said last month that the need for the BOJ's emergency credit-easing programs was declining. A few members were of the view that the positive effects these measures could produce were on the wane, as evidenced by the fact that the amount of CP and corporate bonds purchased by the Bank had declined significantly and that interest rates in funds-supplying operations, which were determined by conventional auction, had been stable at low levels, according to minutes of the September 16- 17 BOJ meeting released today. A policy member said it was important to bear in mind that these measures to facilitate corporate financing were expected to perform the role of a safety net.
- All regions of Japan have begun to show signs of slight economic improvement over the last three months. Reports from each of the nine regions in Japan, signs of picking up had appeared throughout the economy, although regional differences remained, according to the October 2009 Regional Economic Report released by the BOJ today. According to the report, public investment rose and exports and production picked up while business fixed investment declined substantially and private consumption remained weak amid the severe employment and income situation. Compared with the July 2009 assessment, all regions revised their assessments, although Hokkaido, Tohoku, Hokuriku, Kinki, and Shikoku continued to report that their economies were in a severe situation, the report showed.
FX Strategy Update