- The dollar traded mixed on Thursday, having tested important technical levels in the crosses. The dollar index tested its 76.00 support before closing little changed at 76.24. US economic figures were mixed. Housing data was slightly weaker than expected while numbers on initial jobless claims and Philadelphia manufacturing were better than expected. The S&P 500 declined 3.28 points to 1,065.48. The yen fell modestly. The Bank of Japan maintained its key interest rate at 0.10% and upgraded its assessment of the Japanese economy. BOJ Governor Masaaki Shirakawa echoed the new government's view that a strong yen could be beneficial in the long run. The euro rose for a 10th consecutive day. Sterling fell, testing the 1.64-area support as UK retail sales were flat. The Australian dollar was unable to penetrate the 0.88 resistance, pressured by a report on RBA intervention to slow the appreciation. The Swiss franc rose, even against the euro, despite new promise from the Swiss National Bank to counter any gains against the euro.
- The USD/CAD fell for a third day but did not penetrate the 1.06 support. Canada's August LEI climbed the most since April 2002. The Bank of Canada has committed to keep its key interest rate at 0.25% until mid 1010. The LEI indicates the recovery should be well under way before then. Today's Canadian inflation report showed modest inflation pressure, so the inflation targeting BOC may continue its easy monetary policy, which could start to support the USD/CAD. There is also the risk of a direct BOC intervention to support the pair. Still, the direction is going to be inversely related with stocks and commodity prices.
Financial and Economic News and Comments
US & Canada
- US housing starts increased 1.5% to a seasonally adjusted 598,000 annual rate in August after a revised 0.2% decline to 589,000 in July, according to figures released by the Commerce Department. The rise in August housing starts was due to a 25.3% gain in multi-family units. Single-family starts fell 3.0%, the first fall since January after a 38.4% rebound in the past five months. Regionally, housing starts increased 23.8% in the Northeast and 0.9% in the Midwest, were unchanged in the West, and declined 2.4% in the South. August housing starts decreased 29.6 y/y. Building permits climbed 2.7% to a 579,000 annual rate in August after a revised 1.1% decline to 564,000 in July. Permits for single-family units declined 0.2% after a 28.6% gain in the previous four months. ?
- US initial jobless claims unexpectedly fell 12,000 to 545,000 in the week ending September 12 from the previous week's upwardly revised 557,000, figures from the Labor Department showed. The 4-week moving average declined 8,750 to 563,000. Continuing claims in the week ending September 5 rose 129,000 to 6,230,000 from the preceding week's upwardly revised 6,101,000. The 4-week moving average declined 5,500 to 6,180,250. The insured unemployment rate for the week ending September 5 increased to 4.7% from the prior week's 4.6%.
- The Philadelphia Fed manufacturing index rose more than anticipated to 14.1 in September from 4.2 in August, indicating manufacturing in the Philadelphia region continued to expand for the second consecutive month and climbed to its highest level since June 2007, according to the Federal Reserve Bank of Philadelphia's September 2009 business outlook survey. The new orders index remained positive for the second straight month in September, although declining slightly to 3.3 from August's 4.2. The shipments index also registered a positive reading for the second consecutive month, rising to 8.2 from 0.6. The current employment index slipped slightly to -14.3 in September from -12.9 in August, indicating labor market conditions remain weak, despite signs of improvement in overall activity, the Philly Fed said.
- US net wealth of household and non-profit groups increased to $53.1 trillion in Q2 2009 from $51.1 trillion in Q1. The $2 trillion gain is the first gain since Q3 2007, according to the Federal Reserve's Flow of Funds report.
- Canada's consumer prices increased a seasonally adjusted 0.3% m/m in August after a 0.3% m/m decline in July, Statistics Canada reported. The August month-on-month increase was mainly due to a 0.4% m/m advance in the transportation cost index. The CPI fell 0.8% y/y nsa, following July's 0.9% y/y slide that was the biggest since 1953. The year-on-year fall was led by a 19.1% y/y drop in prices for energy products, mainly gasoline. The Bank of Canada core CPI increased a seasonally adjusted 0.1% m/m in August after being unchanged m/m in July. The BOC core CPI rose 1.6% y/y nsa, following July's 1.8% y/y rise.
- Canada's leading economic indicators index rose a more-than-expected 1.1% m/m in August, the most since April 2002, after an upwardly revised 0.6% m/m advance in July, LEI data from Statistics Canada showed, signaling the Canadian economy is in the early stage of a recovery. Eight of the 10 LEI components rose in August, up from 5 in July, led by a record 8.1% gain in new manufacturing orders for durable goods, a 4.3% rise in Canada's S&P/TSX stock price index, and a 3.1% increase in the housing index.
- The eurozone seasonally adjusted trade surplus rose to €6.8 billion ($10 billion) in July, the largest since 2004, from an upwardly revised €2.3 billion in June, data from Eurostat showed. Exports rose 4.1% m/m in July after a 0.9% m/m increase in June, while imports in July declined 0.3% m/m. In non-seasonally adjusted terms, the trade surplus jumped to €12.6 billion in July from €5.4 billion in June, compared with a €3.5 billion trade deficit in July 2008.
- Eurozone construction output fell a seasonally adjusted 2.0% m/m in July after a revised 0.3% m/m decline in June, a separate report from Eurostat showed. July construction output dropped 10.8% y/y wda, following June's revised 7.8% y/y decrease.
- UK retail sales were unchanged m/m in August after a downwardly revised 0.2% m/m increase in July, the Office for National Statistics said. August retail sales rose a less-than-expected 2.1% y/y, following July's downwardly revised 2.9% y/y rise.
- The Swiss National Bank maintained the key interest rate at 0.25%, as expected.
- Large companies in Japan are more optimistic about the economic outlook in Q3 2009, with the large company business sentiment index increasing 0.3% q/q after Q2's 22.4% q/q drop, a survey by the Ministry of Finance showed.
- The tertiary industry activity index rose 0.6% m/m to 96.7 in July after an upwardly revised 0.2% m/m increase in June, indicating a continuing improvement in the domestic service sector in Japan, according to the Ministry of Economy, Trade and Industry.
FX Strategy Update