- The dollar traded lower on Thursday as US stocks hit a new yearly high. The US trade deficit widened more than expected and initial jobless claims declined more than anticipated. The dollar index fell for a fifth consecutive day to 76.80, approaching the 76-area support. The S&P 500 rose 10.77 points to 1,044.14, the highest closing since October 6, 2008. The USD/JPY was lower, testing the 91.50-area support for a second day. The euro rose. European Central Bank Governing Council members Axel Weber and Yves Mersch signaled that the ECB will not remove any stimulus for the foreseeable future. The commodity currencies appreciated marginally on concerns over the Chinese economic outlook. Premier Wen said China's economic recovery is unstable, unbalanced and not yet solid. Australia's employment declined more than expected. The Bank of Canada left its benchmark interest rate unchanged at 0.25%, as expected, and said persistent strength in the Canadian dollar remains a risk to growth. We are buying the EUR/USD and also buying the USD/CHF on speculation the Swiss National bank will intervene to lower the franc value.
- The GBP/USD rose as the Bank of England kept its asset purchasing plan at £175 billion and maintained the key interest rate at 0.50%, as forecast. Some investors had expected an increase in the BOE's quantitative easing program. The pair was also supported by increasing risk appetite and rising UK home prices. The GBP/USD outlook improved as the pair rose above 1.66 today. There are resistance in the 1.70 area and support in the 1.64.
Financial and Economic News and Comments
US & Canada
- The US trade deficit widened more than expected to $32.0 billion in July from a revised 27.5 billion in June, data from the Commerce Department showed. Exports increased 2.2% m/m to $127.6 billion in July, led by autos/parts. Imports, outpacing exports, rose a record 4.7% m/m to $159.6 billion, also driven by autos/parts, with additional large contributions from crude oil and pharmaceuticals. Exports fell 22.4% y/y and imports dropped 30.4% y/y; consequently, the monthly trade deficit was $32.9 billion smaller than last year.
- US initial jobless claims fell 26,000 to a lower-than-expected 550,000 in the week ending September 5, the lowest level since July, from the previous week's upwardly revised 576,000, figures from the Labor Department showed. The 4-week moving average declined 2,750 to 570,000. Continuing claims in the week ending August 29 dropped 159,000 to 6,088,000 from the preceding week's upwardly revised 6,247,000. The 4-week moving average of those continuing claims decreased 37,750 to 6,182,500. The insured unemployment rate for the week ending August 29 slid to 4.6% from the prior week's 4.7%. In short, the declines in both initial jobless and continuing claims signal the end of the recession (yellow areas), as shown in the chart below.
- Canada posted a C$1.4 billion ($1.3 billion) trade deficit in July after registering an upwardly revised C$37 million trade surplus in June, according to figures from Statistics Canada. Imports, rising faster than exports, rose 8.3% to C$31.7 billion, while exports increased 3.3% to C$30.3 billion.
- UK house prices rose 0.8% m/m in August, the second consecutive monthly rise and the fourth in the first eight months of 2009, to an average of £160,973 ($265,475), after an upwardly revised 1.2% m/m gain in July, according to a Halifax report. August house prices declined 7.6% y/y. House prices fell 10.1% y/y in the three months through August, easing the pace of decline and improving for a fourth straight month, following a 12.1% y/y drop in the three months through July.
- The UK Conference Board leading economic index, a measure of future economic activity, advanced 0.7% in July to 92.9, a fourth consecutive monthly gain, after 1.0% increases in both June and May, the Conference Board reported. The coincident economic index, measuring current economic activity, was up 0.1% in July, the same rate as in June, following a 0.3% decline in May.
- According to the September 2009 ECB staff macroeconomic projections for the euro area, published in the ECB September 2009 Monthly Bulletin,average annual real GDP growth will range between -4.4% and -3.8% in 2009 and between -0.5% and +0.9% in 2010.
- Japan's private-sector machinery orders, excluding volatile ones, declined a more-than-expected 9.3% m/m in July after a 9.7% m/m increase in June, according to data from the Cabinet Office's Economic and Social Research Institute. July core machinery orders dropped 34.8% y/y, following June's 29.7% y/y decrease.
- Japan's domestic corporate goods prices were unchanged m/m in August after a 0.4% m/m increase in July, according to the Bank of Japan corporate goods price index. August CGPI fell 8.5% y/y, the largest fall since records began in 1960 and the same rate as in July.
- Australia's median expected inflation rate was unchanged at 3.5% in September, according to the latest Melbourne Institute survey of consumer inflationary expectations.
- Australia's employment fell a more-than-expected 27,100 in August after rising an upwardly revised 33,700 in July, figures from the Australian Bureau of Statistics showed. The unemployment rate was unchanged at 5.8%. Full-time employment fell 30,800 in August, while part-time jobs increased 3,800. The participation rate declined to 65.1% from July's 65.3%.
FX Strategy Update