Dollar remains pressured in early US session after disappointing data from US. Housing starts rose just slightly from downwardly revised 587k to 590k annualized rate in September, missing expectation of 610k. Building permits even dropped slightly from 580k to 573k annualized rate. NAHB housing market index released yesterday also showed sentiments dropped to 18 in October. The data showed while housing market slump has stabilized in the past few months, there isn't any momentum for sustainable recovery yet. Producer Price Index unexpectedly fell by -0.6% mom, -4.8% yoy in September while core PPI dropped -0.1% mom and slowed to 1.8% yoy. Inflation is still not an immediate concern for Fed and core inflation could continue to slow in the near future.
Bank of Canada left rate unchanged at at 0.25% as widely expected. The bank also reiterated the conditional stance to keep rates unchanged till Q2 of 2010. IN the accompanying statement, BoC note that recent developments in the economy is more favorable that expected at the time of the July MPR. Growth has resumed due to support by monetary and fiscal stimulus but persistent strength in Canadian dollar are slowing growth and subduing inflation pressure. The bank expect aggregate demand to shift from net exports to domestic demand and growth would be slightly higher in 2H of 2009. Canadian dollar is slightly lower after the announcement. Other data released saw Canadian wholesale sales dropped sharply by -1.5% mom in August. Leading indicate more rose than expected by 1.1% in September.
Other data released today saw German PPI dropped -0.5% mom., -7.6% yoy in September. UK Public Sector Net Borrowing dropped to GBP 14.8b in September. UK M4 Money supply rose more than expected by 0.7% mom, in September.
In the RBA minutes of October meeting, the bank said inflation could start rising by 2011 as growth returns to above-trend rates and the rising concern of inflation triggered the decision for the 25bps hike to 3.25%. Also, the bank judged the risk to economic outlook ''had diminished significantly over recent months and that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary and possibly imprudent.
Japan Finance Minister Fujii said that the recent strength in yen was caused by weakness in dollar which was then due to US monetary easing. Fujii also said that the government may have to sell more bonds to make up for a shortfall in tax revenue that could drop below 46T JPY to 40T JPY. The government might increase bond sales to a record 50T JPY.
There has been increasing concern from European financial chiefs on dollar's weakness. ECB President Trichet said excessive volatility and disorganized developments in the exchange market was bad for economic development. French Finance Minister Lagard said we want a strong dollar; we need a strong dollar. French President called recent fall in dollar a disaster for the economy. His counselor Guaino said U.S. is flooding the world with dollars and that the currency's weakness may become unbearable.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.0234; (P) 1.0327; (R1) 1.0376; More.
USD/CAD's strong rebound in early US session suggests that rise from 1.0205 is not completed yet. Further upside could be seen to 1.0433 resistance and above. Nevertheless, note that short term outlook will remain bearish as long as 1.0590 support turned resistance holds (50% retracement of 1.0991 to 1.0205 at 1.0598) and recent down trend is still in favor to continue. Below 1.0267 minor support will flip intraday bias back to the downside first. Break of 1.0205 will confirm that recent down trend has resumed for 100% projection of 1.1723 to 1.0631 from 1.1101 at 1.0009, which is close to parity.
In the bigger picture, at this moment, there is no sign of bottoming in USD/CAD yet and the break of rising trend line in daily MACD is arguing the the fall is regathering momentum. Fall from 1.1723 is viewed as resumption of fall from 1.3063 to 1.0784 and is possibly developing into it's own five wave sequence. Next medium term target will be 100% projection of 1.3063 to 1.0784 from 1.1723 at 0.9444. On the upside, break of 1.0590 is needed to be the first sign that USD/CAD has bottomed. Otherwise, outlook will remain bearish.