Dovish BoC Disappoint Bulls, But RBNZ Turn Hawkish.

The NZD found itself back above the 0.7500 level against the USD on comments from RBNZ Governor Alan Bollard that the strength of the currency was not an impediment to raising rates. The NZ stock index was down a percent overnight, as the comments appear to lend credence to speculation that the central bank will drop its dovish bias at the next meeting on 28 Oct. Bollard was previously quoted on 10 Sep as saying he did not expect rates to rise until “the latter part of 2010”, but since then improved Retail Sales and heightened quarterly inflation figures have materialized which have caused many to suspect a change of stance was likely. The other main news headlines from the Asian session were the disappointing earnings figures from China Mobile and China Telecom, but on the whole Asian equity indices are only modestly lower on the day.

Yesterday’s key events were US PPI and Housing data along with the BoC Rate Meeting. After weaker than expected PPI figures (-0.6% MoM vs. 0.0% exp.), poor Housing Starts (590k vs. 610k exp.) and Building Permits (573k vs. 595k exp.), the risk appetite trade pared back slightly and allowed the USD to regain a footing. The move was then amplified after the dovish BoC statement where the BoC clearly shut the door on any suggestions they might bring forward their schedule for tightening monetary policy, reiterating that rates would remain at 0.25% throughout 2010. This caused USDCAD to fly higher, taking out stops through 1.0440 and testing the resistance at 1.0520 whilst dragging most other major currencies lower against the USD with it. With the move lower in EURUSD, gold slumped through $1060 and proceeded to take out stops down to $1052.50 levels, but the pivotal $1050 support has held thus far.

Today the focus will be on the release of the BoE Minutes from their most recent meeting, and as with previous editions, all eyes will be looking to the result of the votes on QE going forward. The direction of GBP from here hinges pivotally on whether additional stimulus is deemed to be necessary, and if we see a 9-0 vote in favour of no further expansion to QE then it is likely we see a further aggressive unwind of GBP shorts. In contrast, any indications (such as a split vote) that the MPC are contemplating more QE in November could very easily take GBPUSD back down to 1.6000 levels.

The slew of better earnings yesterday demonstrated limited effect on risk sentiment and therefore FX markets, but for what its worth today will be just as packed on the release schedule; main names to look for include Morgan Stanley, Wells Fargo and Boeing.

G10 Advancers and Decliners vs USD
Global Indexes Current Level % Change
Nikkei 225 Index10'333.39- 0.03
Hang Seng Index22'353.58- 0.14
Shanghai Index3'077.30- 0.23
FTSE 100 Index5'243.40- 0.72
DAX Index5'811.77- 0.70
SMI Index6'427.29- 0.14
S&P future1'086.80- 0.24
World Markets Current Level % Change
Gold1'056.07+ 0.08
Silver17.47- 0.14
VIX20.90- 2.75
Crude wti78.72- 0.51
USD Index75.52- 0.06
Todays Calender Estimates Previous Country / GMT
BoE MPC minutes, vote9-09-0GBP/08:30
CBI industrial trends, total orders, Oct-40-48GBP/10:00
Fed Beige Book Released--USD/18:00
Currency Tech
R 2: 0.9475
R 1: 0.9345
CURRENT: 0.9250
S 1: 0.9115
S 2: 0.8985

R 2: 1.0650
R 1: 1.0560
CURRENT: 1.0500
S 1: 1.0240
S 2: 1.0129

R 2: 137.87
R 1: 136.10
CURRENT: 135.45
S 1: 133.33
S 2: 132.25

R 2: 13.330
R 1: 13.175
CURRENT: 13.035
S 1: 12.767
S 2: 12.620