Dollar is sold off sharply across the board on rumors that Gulf states are considering to switch to a basket of currencies, which includes yen, euro and gold, for oil dealing. Saudi Central Bank Governor al-Jasser denied having held talks with other countries on this topic and dollar takes a breath after his comments. Nevertheless, the greenback remains under pressure with gold takes out 1033.9 key level and makes new record high. Dollar will possibly remains soft in near term.

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While dollar is weaker, Sterling is even weaker. Pound is sold off sharply after release of much worse than expected production data from UK. Industrial production dropped -2.5% mom in August versus consensus of 0.2% rise. Manufacturing production dropped -1.9% mom in August, versus consensus of 0.3%. GBP/AUD is obviously the weakest pair today and is heading to 100% projection of 2.2877 to 1.9684 from 2.0979 at 1.7786. GBP/CHF is also set to resume the fall from 1.8111 towards 1.5111 low.

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Aussie surged to new 2009 high against dollar after RBA unexpected hikes interest rates from 3.00% to 3.25% today. While markets are generally expecting RBA to be the first major central bank to remove policy accommodation after the financial crisis, today's rate hike is earlier than generally expected. In the accompanying statement, RBA noted that the risk of serious economic contraction in Australia now having passed and it's prudent to begin gradually lessening the stimulus provided by monetary policy. Further rate hikes is generally expected down the road considering that RBA is now comfortable with recovery in the global economy, in particular in its major trading partners like China.

Other data released today saw Australia trade deficit narrowed much less than expected to -1524M. Swiss CPI was flat mom in September, dropped -0.9% yoy. Canadian building permits rose 7.2% mom in August versus expectation of 4.5%.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0654; (P) 1.0738; (R1) 1.0782; More.

USD'/CAD decline is still in progress and reaches as low as 1.0608 so far. As discussed before, rebound from 1.0590 has completed at 1.0991 and the corrective structure suggests that recent down trend in USD/CAD is still in progress. Intraday bias remains on the downside for 1.0590 low first and break there will target lower trend line support at 1.0409 next. On the upside, above 1.0712 minor resistance will turn intraday bias neutral first. But break of 1.0957 is needed indicate that rise from 1.0590 has resumed. Otherwise, risks will still be on the downside.

In the bigger picture, fall from 1.3063 is treated as correction to the five wave rally from 0.9056 (07 low). Current development suggests that such decline is not completed yet and a new low below 1.0590 could be seen. Nevertheless, downside momentum is clearly diminishing as seen in bullish convergence conditions in daily MACD and we'd continue to look for reversal signal in next fall.

USD/CAD