- The dollar fell on Thursday as better-than-expected initial jobless claims indicated the US economy is slowly improving. The Bank of England and European Central Bank kept the benchmark interest rates at 0.50% and 1.00%, respectively, showing no signs of changing their monetary policies anytime soon. ECB President Jean- Claude Trichet, warning against excessive currency moves, stressed that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability and a strong dollar is extremely important in the given circumstances. However, US officials were silent. The S&P 500 index rose 7.90 points to 1,065.48. The USD/JPY fell; however, remaining above the 88 support. The euro rose to the highest level in two weeks. Sterling advanced on improving risk sentiment. The Australian dollar rallied to a 14-month high as Australia's unemployment rate declined for the first time in five months. The Canadian dollar gained as commodity prices advanced.
- The dollar index fell for the fourth day in five, touching the lowest level in nearly 14 months. The low-yielding greenback is the favorite funding currency in carry trades. The low probability of a Fed rate hike in the foreseeable future has made shorting the dollar very popular. The dollar index is now trading below the 76- handle support. Technically, it seems gold may reach 1300 and the dollar could collapse. Everybody seems to be bearish on the dollar, possibly meaning that the dollar could have a short covering rally.
Financial and Economic News and Comments
US & Canada
- US initial jobless claims fell 33,000 to a lower-than-expected 521,000 in the week ending October 3 from the previous week's upwardly revised 554,000, according to figures from the Labor Department. The 4-week moving average of new jobless claims declined 9,000 to 539,750. Continuing claims in the week ending September 26 dropped 72,000 to 6,040,000 from the preceding week's upwardly revised 6,112,000. The 4- week moving average of those continuing claims decreased 15,750 to 6,144,250. The insured unemployment rate for the week ending September 26 declined to 4.5% from the prior week's 4.6%. Overall, the figures show a clear downward trend in joblessness amid an improving US labor market.
- US wholesale inventories fell for a twelfth consecutive month in August, falling a more-than-expected 1.3% m/m to a seasonally adjusted $381.2 billion, after a downwardly revised 1.6% m/m decrease in July, data from the Commerce Department showed, registering the longest stretch of declines since records began in 1987. Wholesale sales gained 1.0% m/m to $317.9 billion in August after an upwardly revised 0.6% m/m advance in July, indicating the US economy is steadily recovering. The August inventory-to-sales ratio declined to 1.20 from July's 1.23, higher than August 2008's 1.16. Inventories fell 14.7% y/y in August; sales dropped 17.7% y/y.
- Canada's seasonally adjusted housing starts declined 4.6% m/m to an annualized 150,100 rate in September, led by the volatile multiple starts segment, from an upwardly revised 157,300 rate in August, Canada Mortgage and Housing Corporation reported. September housing starts fell 29.7% y/y.
- Germany's seasonally adjusted industrial production gained 1.7% m/m in August after a revised 1.1% m/m decline in July, according to IP data from the Federal Ministry of Economics and Technology. August IP fell 16.8% y/y nsa wda, following July's 17.0% y/y drop.
- Japan's current-account surplus widened 10.4% y/y to a more-than-expected ¥1.171 trillion ($13.2 billion) in August, the Ministry of Finance said. Exports fell 37.1% y/y in August, easing the pace of decline from a 37.6% y/y slide in July, while imports dropped 42.8% y/y, deepening July's 41.2% y/y decrease.
- Japan's merchant confidence improved in September, with the Japanese current conditions index increasing more than expected to 43.1 from August's 41.7, according to the Cabinet Office's economy watchers survey. The future conditions index advanced to 44.5 from 44.0.
- Japan's machine tool orders continued its decline in September, falling 61.9% y/y, after a 71.5% y/y drop in August, the Japan Machine Tool Builders' Association reported. Domestic orders decreased 55.6% y/y in September, while foreign orders tumbled 65.8% y/y.
- Australia's home-loan approvals fell for a second consecutive month in August, falling a seasonally adjusted 0.6% m/m to 62,718, in line with forecast, after a revised 2.2% m/m decrease in July, figures from the Australian Bureau of Statistics showed. The total value of loans increased 0.7% m/m to A$22.782 billion ($20.25 billion). The value of lending for owner occupied housing fell 1.7% m/m to A$16.543 billion while the value of lending for investment housing rose 7.6% m/m to A$6.239 billion.
- Australia's employment unexpectedly rose by 40,600 to 10,805,600 in September after falling a revised 26,100 in August, figures from the Australian Bureau of Statistics showed. The unemployment rate unexpectedly fell to 5.7%, the first fall in five months, from 5.8%. Full-time employment rose by 35,400 to 7,589,800 in September and part-time employment was up by 5,200 to 3,215,800. The participation rate declined to 65.2% from 65.1%.
FX Strategy Update