- USD: Lower, pressured by firm equity market trade and demand for higher yields
- JPY: Higher, leading economic indicators rise for the fourth month in row
- EUR: Higher, German exports rise, ECB's Weber says ECB must act when inflation pressures emerge
- GBP: Higher, Moody's says UK debt rating is safe, consumer confidence at a 15 month high
- CAD and AUD: AUD & CAD higher, Australia's consumer confidence surged, Canadian housing starts jump
OverviewÂ Â Â Â Â
USD traded at a new low for 2009 Wednesday pressured by concern about USD reserve currency status, improving risk appetite as equity markets rally to new highs for 2009 and in reaction to the G-20 pledge last weekend to maintain stimulus policies until the recovery is secure. A statement from former MOF official Sakakibara that that the USD will remain the world's reserve currency for the next 20 years did little to reduce fears about USD reserve status. Moody's says that UK debt rating is safe adding support to the GBP and Australia's consumer confidence posted a sharp rise. The sharp rise in Australia's consumer confidence helped offset weak Australian retail sales and the AUD got an additional boost from rising commodity prices. CAD supported by report of a sharp rise in Canada's August housing starts. There was little reaction to yesterday's report that US consumer credit dropped by a record 21.6 bln. The record drop in consumer credit will likely mean a slow economic recovery in the US and may inject some caution about the US recovery. The US decline is due to speculation the US recovery will lag Europe and Asia. Mortgage applications however hit a three-month high. The US housing market is showing more signs of stability. Diversification out of USD will likely continue until the G-20 signal an exit strategy from fiscal and monetary policy stimulus. Investors are positioning for re-flation and a global recovery. The Fed's Evans warned that the Fed is prepared to act quickly if inflation emerges. Evans said the Fed will do the right thing and block inflation. Evans went on to say that it's too soon to start removing accommodative policy but when the time is right the Fed will act aggressively. The recent sharp rise in the price of gold may be getting the attention of central bankers and encourage stepped up discussions of exit strategies from monetary ease. The withdrawal of stimulus and an exit strategy from expansive monetary policy would be a short-term positive for the USD.
Today's US data:
No major US economic data was released in today's trade.
Upcoming US data:
On September 10th initial jobless claims for week ending 09/05 will be released expected at 960k compared to 970k last month along with July trade balance expected at -27.5 bln compared to -27.1 bln last month. On September 11th August import prices will be released expected at 0.9% compared to -0.7% last month along with preliminary University of Michigan consumer sentiment expected 65.3 compared to 65.7 last month. July wholesale inventories and the Treasury budget for August will be released on September 11th as well. Wholesale inventories are expected to fall by 1% compared to -1.7 last month, the Treasury budget is expected to -161.50 bln compared to -111.91 bln last month.
JPY traded higher with gains limited by selling in cross trade as EUR trades at new highs for the year. Analysts at UBS raised their forecasts for the EUR and GBP because of improving risk appetite. JPY gains were partly limited by improving risk sentiment as equity markets extend Tuesday's rally. There is a debate emerging over whether the USD will emerge as the preferred funding currency replacing the JPY. The inverse correlation of JPY to the direction and equity markets continued to be break down with optimism about the global economic recovery rising. If this breakdown continues it could be a sign that more broad-based USD decline could emerge. Japanese economic data was positive with the July leading economic indicator rising for the fourth month in a row. Japan's revised GDP will be released Friday and is expected to show the economy grew at 0.9%. The GDP will confirm that Japan's economy has emerged from recession in Q2 of 2009. Tuesday a Japanese government report stated that the Japanese economy is improving but the government warned that rising unemployment clouds the outlook for the economy.
On September 10th August corporate good prices will be released along with leading indicators for July. Corporate good prices are expected to rise 0.5% compared to 0.4% last month and leading indicators are expected unchanged at 3.9%. On September 11th July machinery orders will be released along with July industrial output. Machinery orders are expected to fall 31% compared to -29.7 last month.
Key technical levels to watch in USD/JPY include support at 91.15 the February 16th low with resistance at 93.30 the September 7th high.
EUR traded at a new high for 2009 supported by improving risk sentiment and concern about USD reserve status. European equity markets extended Tuesday's rally. The rally in European equity markets fuels risk appetite and demand for EUR. EUR was also supported by report of improving export sales from Germany and stronger German factory output in July. German exports rose 2.3% in July. The rise in exports suggests that the global economic outlook is improving. The UN issued a report Monday which calls for a diminished role of the USD as the global reserve currency. The UN report said that the USD should be replaced with the new currency to protect emerging markets. The UN report suggests something equivalent to the Bretton Woods or European Monetary System is needed to replace the current world currency system. This type of currency regime involves set ranges for currencies and intervention to maintain those ranges. Former MOF official Sakakibara rejected the UN report and said that he expects the USD to remain the world's reserve currency for at least the next few decades. Japan's new prime minister said that Japan has no plans to diversify its USD reserves away from the USD. Japan is the second largest holder of US debt after China. The BRIC countries, Brazil, Russia, India and China earlier in the year called for the replacement of the USD as the main reserve currency. Part of the recent rally in gold is attributed to China diversifying some of its USD reserves for gold. If this is true it makes it more difficult to judge whether the rising price of gold is a harbinger of inflation risk or a reflection of asset diversification. Inflation risk may emerge as a key concern in light of the G-20 pledge to maintain fiscal and monetary stimulus until the recovery secure. ECB's Weber said the ECB must act on inflation pressures before they emerge.
The technical outlook for the EUR is positive as EUR breaks to upside of its recent range trade. Expect EUR support at 1.4329 the September 8th low with resistance at 1.4650.
GBP traded higher supported by report that UK consumer confidence rose to its highest level in 15 months and in reaction to a statement from Moody's that UK debt downgrade is unlikely. UK Nationwide consumer confidence rose to 63 from 61 and July. The rise in the consumer confidence is another indication that the UK recession is ending. The Daily Telegraph reports that the UK recession appears to be over and the BBC reports that the UK employment market is showing signs of recovery. UK July trade balance narrowed to 6.47 billion from 6.51 billion as exports rise. Exports rose 5%. The export rise is another indication that the global economy is stabilizing. Tuesday, the UK reported that manufacturing and industrial output rose more than expected. The improvement in UK manufacturing output fuels expectations that the UK economy is emerging from recession in Q3. NIESR reports that UK GDP grew by 0.2% into August .This suggests that the UK GDP may turn positive in Q3. Growth however will likely be weak. GBP had been underperforming pressured by UK debt and expansion of BOE quantitative ease. Today's statement from Moody's to the UK debt rating is safe may reduce concerns about UK budget outlook. Moody's notes that there is pressure for the UK to cut public spending. BOE meet on Thursday and no policy change is expected. Recent improvement in UK economic data will also make it less likely that the BOE will expand quantitative ease. The BOE expanded quantitative ease in August to Â£175 bln with three of the BOE board members calling for an additional Â£25 bln increase. This opens the door for the possibility of another surprise expansion of quantitative ease at Thursday's meeting. The decision to expand quantitative ease once again would be a mild negative for GBP.
BOE meet on September 10th, no policy changes is expected. On September 11th PPI will be released expected at 0.6% compared to 0.5% last month.
The technical outlook for GBP is improving as GBP rises back above 1.6500. Expect near-term support at 1.6320 the 8th low with resistance at 1.6670 the August 13th high.
CAD traded higher supported by report of a sharp rise in Canadian housing starts. Canada's August housing starts rise by 150.4k, a rise of 132k was expected. The rise in Canada's housing starts encouraged speculation that the Canadian recession is ending. Canada reported weaker than expected building permits Tuesday. Canadian July building permits fell 11.4%, the trade was looking for a 0.4% rise. CAD underperformed last week pressured by increased political uncertainty in Canada as the Canadian Liberal party said that they would no longer support the minority government threat of intervention. CAD gains were limited by BOC policy uncertainty and threat of intervention. BOC meet on September 10th. The BOC is expected to hold rate policy steady at 0.25%. The trade will be looking for possible BOC comments on CAD strength.
July New Housing Price Index will be released on September 11th expected at 0.1% compared to-0.2% last month.
The technical outlook for CAD is positive as USD/CAD falls below 1.1080. Look for near-term support at 1.0630 the August 4th low with resistance at 1.10975 the September 4th high.
AUD traded at a new high for 2009 supported by improving risk sentiment and report of a sharp rise in Australia's consumer confidence. Westpac consumer confidence rose to its highest level in two years reported up 5.2%. The sharp jump in Australia's consumer confidence will increase pressure on the RBA to hike interest rates and the report confirms improving outlook for Australia's domestic economy. AUD gains were limited by report that July retail sales declined by 1% and July housing finance fell by 2%. These reports are overshadowed by the jump in consumer confidence and the continuing rally in global equity markets. AUD surged Tuesday supported by rising price of gold and report of improving Australian business confidence. Australia's August NAB business confidence rose to its highest level in six years up eight points to 18. G-20 pledge to maintain expansionary fiscal and monetary policies supports commodity prices and global equity markets. AUD has been the best performing currency supported by RBA rate hike speculation and a sharp rise in the price of gold. The RBA is expected to be the first central bank to hike rates as the global economy recovers. Australian press reports that a number of analysts expect the AUD to trade above 9000 in the months ahead. Focus turns to Thursday's release of August unemployment.
On September 10th August employment will be released expected unchanged at 5.8% with employment change at -7k.
The technical outlook for the AUD is positive as AUD rises above 8600. Expect AUD support at 8528 the September 8th low with resistance at 8695 the August 28th high and 8800.