- The dollar fell versus most major currencies on Wednesday but pared losses after the Federal Reserve said eleven of its twelve regional banks reported signs of a stable or improving economy. US mortgage applications rose the most since March in another sign the economy is recovering. The S&P 500 was up 7.98 points to 1,033.37. The USD/JPY fell. The euro rose for a fourth day. European Central Bank council member Erkki Liikanen suggested the ECB may start to unwind its emergency lending measures before raising interest rates. Sterling gained as UK consumer confidence climbed to the highest level since May 2008. The Bank of England is expected to keep its benchmark interest rate unchanged at 0.50% on Thursday. The Australian dollar was little changed.
- The USD/CAD rose modestly ahead of the Bank of Canada rate decision meeting tomorrow. Investors, expecting the BOC to maintain its key rate at 0.25%, will be looking for the central bank's comments on the value of the Canadian dollar and possible signals of verbal or real intervention to weaken the loonie. Political uncertainty and the threat of intervention have supported the pair. Still, the USD/CAD is in a strong downtrend. If this is broken, the pair will turn bullish. There is important support in the 1.06 area.
Financial and Economic News and Comments
US & Canada
- US mortgage applications rose 17.0%, the most since March, to 648.3 in the week ending September 4 from 554.1 a week earlier, according to the Mortgage Bankers Association (MBA). The MBA refinancing index rose 23.0%, and the purchasing index increased 9.5% to the highest since January.
- Canada's seasonally adjusted housing starts rose more than expected to an annualized 150,400 rate in August, the fastest pace so far this year, from an upwardly revised 134,200 rate in July, figures from Canada Mortgage and Housing Corporation showed, suggesting Canada's housing sector is recovering.
- Germany's consumer prices increased 0.2% m/m and remained steady y/y in August, unchanged from preliminary CPI data reported on August 27, final August data from the Federal Statistical Office confirmed, after 0.0% m/m and a 0.5% y/y decline in July. The harmonised index of consumer prices (HICP), calculated for European purposes, increased 0.3% m/m in August, revised slightly downward from a previously reported 0.4% m/m rise, after a 0.1% m/m decline in July. The HICP was down 0.1% y/y, a second year-on-year slide since the beginning of the HICP compilation for Germany and revised slightly downward from a previously reported 0.0% y/y, following July's 0.7% y/y decrease.
- The UK's total trade deficit was £2.4 billion ($3.96 billion) in July, bigger than expected and the same as in June, while the visible trade deficit was £6.5 billion, wider than expected and unchanged from June, figures from the Office for National Statistics showed. Exports and imports both increased by £0.9 billion in July. The deficit with EU countries narrowed to £2.6 billion in July from £2.8 billion in June, while the deficit with non-EU countries widened to £3.9 billion from June's £3.7 billion.
- The Nationwide UK sentiment index increased more than expected to 63 in August from an upwardly revised 61 in July, indicating UK consumer confidence rose to the highest level since May 2008, data from Nationwide Building Society showed.
- UK shop prices fell 0.1% y/y in August, the first year-on-year fall since February 2007, after a 0.5% y/y increase in July, the British Retail Consortium reported.
- The Japanese leading economic indicators index, a measure of future economic activity, climbed more than expected to 83.0 in July, a fifth straight monthly gain, from an upwardly revised 80.9 in June, according to preliminary July LEI data from the Cabinet Office. The coincident index, measuring present economic activity, rose more than anticipated to 89.6, a fourth consecutive monthly increase, from June's upwardly revised 88.6.
- Japanese machine tool orders fell 71.3% y/y in August after a revised 72.3% y/y drop in July, the Japan Machine Tool Builders' Association reported. Domestic orders fell 71.8% y/y in August and foreign orders decreased 70.9% y/y.
- The Westpac-Melbourne Institute consumer sentiment index for Australia rose 5.2% m/m to 119.3 in September after a 3.7% m/m increase to 113.4 in August, indicating Australian consumer confidence climbed to the highest level since July 2007, according to a Westpac Banking Corp. and Melbourne Institute survey. The index has risen 34.4% over the last 4 months, the largest 4-month gain since the survey began in 1975.
- Australia's seasonally adjusted retail sales unexpectedly declined 1.0% m/m in July after an upwardly revised 0.8% m/m decrease in June and an upwardly revised 1.2% m/m gain in May, according to data from the Australian Bureau of Statistics (ABS). The decline in July retail sales was led by a 3.6% m/m decrease in household goods retailing.
- Australian home-loan approvals fell a more-than-expected 2.0% m/m in July to 63,259, the largest monthly fall since June 2008, figures from the ABS showed. The total value of loans decreased 2.3% m/m to A$22.46 billion ($19.37 billion). The value of lending for owner occupied housing declined 1.7% m/m to A$16.884 billion in July, and the value of lending for investment housing fell 4.0% m/m to A$5.576 billion.
- The Reserve Bank of New Zealand kept its key interest rate unchanged at 2.50%, as forecast. RBNZ Governor Alan Bollard said: There is more evidence that the decline in economic activity is coming to an end, and that a patchy recovery is underway.
FX Strategy Update