Forex Exchange Morning Report

Forex Exchange Morning Report


News And Views

Fresh 2009 highs were the theme of the evening for many risk markets. The S&P500, currently up 0.9%, gapped higher at the open, inspired by improvements in US jobless claims and the previous day's Alcoa Q3 earnings report, the first of the season. Later, Congress officials commented they may extend the first homebuyer tax credit, boosting building and property stocks. Commodities outperformed on the above, as well as the dollar's decline, oil gaining an impressive 3.6% to $72.50, copper up 3.7%, and gold made a fresh record high at $1061.50. US treasuries, which have held up well despite higher risk appetite since June, buckled under the search for better returns, and gained 10bp in yield from the NY open. The 30yr auction was slightly disappointing. Latvia's finance minister said plans to reduce the deficit (and avoid devaluation) were in progress.



The US dollar index finally dipped below the key 75.83 level during NY, to 75.77, currently slightly above at 75.95. Kuwait's finance minister said switching away from US dollars for oil trade is 'not on the cards'. EUR peaked at 1.4818, still below the 23 September peak of 1.4844. The ECB's policy meeting was uneventful, as was the BOE's. GBP rallied with the rest to 1.6120. USD/CAD ground slightly lower to 1.0512, hurt perhaps by an independent advisory report the BOC would remain on hold until mid-2010. JPY was stable above 88.20.



AUD surged to a fresh 2009 high of 0.9090, a media commentator calling for a 50bp hike in November justified by yesterday's stellar employment report. NZD too made a fresh 2009 high of 0.7457. AUD/NZD is now back to mid-channel after reaching 1.2239 and consolidating slightly below.



US wholesale inventories fell 1.3% in Aug, continuing to decline at a rapid pace in the middle of the third quarter, despite the positive impact of rising energy prices (ie real stocks fell at a steeper pace). At some future point low inventory levels will lead to increased orders and production but our earlier expectation that restocking would make a decent positive contribution to Q3 GDP growth seems to have been premature.



US initial jobless claims more than reversed their previous week's spike last week, falling 33k to 521k, their lowest level since the start of 2009, and maintaining a decent downtrend. Continuing claims a week earlier posted a third consecutive decline, clearly ending a two month long see-saw pattern. That could simply reflect claimants running out of benefit and so dropping off the list, or it could be a genuine sign of labour market conditions improving.



Canadian housing starts fell 4.6% in Sept, but this followed a 17.2% jump in August so the trend remains clearly to the upside. Single family house starts rose 11.3% in August and 16.8% in September: double digit back to back monthly gains like these are indicative of a housing sector that is back in recovery mode.



The European Central Bank left its repo rate unchanged at 1.0%. At the press conference ECB chief Trichet described rates as 'appropriate' and gave no hint whatsoever about the timing of any policy retightening, which Westpac expects to still be up to a year away. Although the ECB acknowledges 'an ongoing stabilisation of economic activity', Trichet noted 'the recovery is expected to remain rather uneven. It will be supported in the short term by a number of temporary factors but is likely to be affected over the medium term by the process of ongoing balance sheet correction in the financial and the non-financial sector of the economy, both inside and outside the euro area.' On the data front, German industrial production rose 1.7% in Aug.



The Bank of England left rates on hold at 0.5% and continued with its £175bn asset purchase program, with no extension. The statement included no other commentary. However we continue to expect a £25bn extension to the quantitative easing program to be announced at the November policy window.



Outlook today

AUD/USD and NZD/USD: The upward trends remain intact for both, and we look for higher highs during the next few days. AUD has minor support at 0.9050, stronger between 0.8950 and 0.9000. NZD has support at 0.7420.