The US Dollar and the JPY are stronger against most of their major counterparts this morning, as investors turn to their relative safety with stocks and commodities beginning the day deep in the red. While European debt is still a cause for concern, today's woes are focused on slowing global economic growth. Export powerhouse China, the world's second largest economy, posted a far narrower trade surplus than anticipated as exports unexpectedly registered their worst reading in seven months. Meanwhile, US trade figures registered largely flat from last month, posting a deficit of $45.6B with exports remaining near an all-time high. The numbers are a positive for the US economy, with the trade gap averaging $46.5B during the third quarter after averaging $47.3B in the second quarter, suggesting that trade will be a source of strength for the economy as we head into the end of the year. However, much of the uptick in demand for US-made goods is likely attributed to the dollar's steady weakning throughout much of the past summer, especially against emerging market currencies like the RMB, RUB and BRL. However, with those trends having made a stark reversal, it remains to be seen if the strong export figures can be maintained. In the near term, the increase in financial market volatility will support the dollar and other safe-haven currencies, albeit within recent ranges.
The EUR pulled back from the highest levels against the USD and JPY in more than a month after cautionary rhetoric from the ECB. In a statement to reporters, the central bank said that involvement of the private-sector banks in bailouts would risk financial stability. However, the common currency pulled off its overnight lows after the Slovakian parliament successfully ratified the expansion of the EFSF. While an encouraging development, approval was fully expected, and the market is already focused on next week's Eurozone summit at which a plan for an orderly default in Greece will likely be discussed. Data this morning is also weighing on the EUR as German growth is expected to slow to a mere 0.8% in 2012 from 2.9% this year.
Sterling is a bit weaker this morning against both the USD and EUR, but is well off its overnight lows. The pound initially fell on renewed speculation that the BoE will further increase the level of their asset purchases after restarting the operations earlier this week. Deputy Governor of the BoE, Charlie Bean, was quoted in the Guardian this morning stating that the monetary policy committee could well decide to expand quantitative easing again should the economy continue to languish. However, demand for the pound as an alternative to the EUR will likely provide support in the near term.
The JPY has benefitted the most against the USD on the weak economic reports and ongoing concern regarding the Eurozone's debt woes. Investors also bought the safe-haven JPY, despite persistent warnings from the BoJ that they are vigilantly monitoring the strong yen, as little international support exists for market intervention, and even should the Bank act, recent history has shown the weakening effects on the yen are temporary at best.
The Commodity Currencies are broadly lower this morning with both stocks and commodities in the red. Oil tumbled by more than 2% to $83/bbl, gold fell $1660.60 and copper fell to $328/lb. The CAD came under early selling pressure as the price of oil, Canada's main export, fell for the third straight session on a worsening outlook for the global economy. The AUD fell back towards parity with the USD on the weak trade data out of China, the main destination for Australian exports. A PBoC official also told reporters this morning that the central bank is not considering easing rates in the near term as inflation in China remains uncomfortably high. The NZD also fell on the Chinese data and after a report showed that manufacturing in the South Pacific nation grew at the slowest pace in six-months as the economy continues to struggle to rebound from devastating natural disasters earlier this year. The ZAR has recovered from its overnight lows after Slovakia approved the expansion of the bailout fund in the Eurozone, the main destination for South African exports. However, with global financial markets paring recent gains on renewed fears of a global economic slowdown, the commodity currencies will struggle to maintain their recent strength.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.