- The dollar gained for a second day as declines in equity and commodity markets increased risk aversion. US economic figures were mixed. August existing home sales unexpectedly decreased, while initial and continuing jobless claims fell to lower-than-expected levels. The Federal Reserve and other major central banks announced they will scale back their emergency lending programs that have injected trillions of dollars into financial institutions, citing improving credit conditions. The S&P 500 declined for a third day, losing 10.09 points to 1,050.78. The yen rose as Japanese companies repatriated funds before the end of the first half of the fiscal year, taking advantage of a new law waiving tax on companies' foreign profits. The euro fell for a second day despite Germany's Ifo business confidence rising for a sixth consecutive month. Sterling plunged following Bank of England Governor Mervyn King's comment that a weak pound was helpful in rebalancing the UK economy to be more focused on exports. The Australian dollar fell as commodity prices and risk appetite declined. The fall was softened by Australia's strongest new home sales in over three and a half years.
- The USD/CAD hit its highest level in over two weeks as crude oil and stock prices fell. The pair is also supported by continuing worries of Bank of Canada intervention to depreciate the Canadian dollar. BOC Deputy Governor David Longworth said yesterday that persistent strength of the loonie is a risk to a Canadian economic recovery. The pair's direction is continuing to be inversely related with equity and commodity prices. One could argue about how to draw the downtrend. One way to draw it would indicate that the pair has penetrated the downtrend, while the other way would show that it is still testing resistance from its downtrend. A penetration of this diagonal resistance would indicate a strong USD/CAD rally. It may be premature, but we are buying the USD/CAD with stop at 1.06.
Financial and Economic News and Comments
US & Canada
- US initial jobless claims fell 21,000 to a lower-than-expected 530,000 in the week ending September 19 from the previous week's upwardly revised 551,000, figures from the Labor Department showed. The 4-week moving average declined 11,000 to 553,500. Continuing claims in the week ending September 12 dropped 123,000 to a lower-than-expected 6,138,000 from the preceding week's upwardly revised 6,261,000. The 4- week moving average declined 1,250 to 6,187,250. The insured unemployment rate for the week ending September 12 slid to 4.6% from the prior week's 4.7%. Overall, the figures indicate some improvement in the still-weak US labor market.
- US existing home unexpectedly declined 2.7% m/m in August to a seasonally adjusted 5.10 million annual rate, below expectations, after rising at the fastest rate in 10 years to a 5.24 million pace in July, figures from the National Association of Realtors showed. August existing home sales increased 3.4% y/y. Most of the August month-on-month decline was for single-family units. Sales of condos/co-ops dipped slightly. The median price of an existing home fell to $177,700 in August, down 12.5% y/y. Inventories of existing home sales decreased 10.8% at the end of August to 3.6 million available for sale, representing an 8.5-month supply at the current sales pace, the fewest since April 2007, following July's 9.3-month supply. Regionally, existing home sales fell in the Northeast, Midwest, and South, but increased in the West.
- The Ifo German business climate index rose to a lower-than-expected 91.3 in September from 90.5 in August, indicating Germany's business confidence climbed for a sixth straight month and to the highest level since September 2008, data from the Ifo Institute showed. The current conditions index increased to 87.0 in September from an upwardly revised 86.2 in August, while the business expectations index advanced to 95.7 from 95.0.
- Japan's exports fell 36.0% y/y in August, an eleventh consecutive year-on-year fall, deepening July's 36.5% y/y decrease, while imports dropped 41.3% y/y, a tenth straight year-on-year drop, following July's 40.8% y/y slide, according to figures from the Finance Ministry. The trade surplus rose more than expected to ¥185.7 billion ($2.04 billion) in August from a ¥314.2 billion deficit a year earlier. August registered a seventh consecutive month of surplus, following July's downwardly revised ¥377.9 billion surplus. On a seasonally adjusted basis, exports fell for a second consecutive month, falling 0.7% m/m, while imports declined 1.0% m/m. The seasonally adjusted trade surplus widened to ¥235.4 billion in August from an upwardly revised ¥222.1 billion in July.
- Japan's all industry activity index increased a less-than-expected 0.5% m/m in July, a fourth consecutive month-on-month gain, after an upwardly revised 0.2% m/m advance in June, data from the Ministry of Economy, Trade and Industry showed. The index fell 8.2% y/y in July, the same rate as in June.
- Japanese supermarket sales fell for a ninth straight month in August, falling 3.4% y/y to ¥1.08 trillion ($11.87 billion) on a same-store basis, after a 4.8% y/y decrease in July, the Japan Chain Stores Association reported.
- Australia's new home sales jumped 11.4% m/m in August, the largest monthly gain over three and a half years, after a 0.1% m/m increase in July, the Housing Industry Association said. FX Strategy
FX Strategy Update