Volatility ahead on US Budgetary concerns

Australian Dollar:

Weighing on the US dollar overnight US Congress has once again failed to pass legislation which would keep the government open. Increasing the likelihood that government workers would be left with an indefinite period of leave without pay the senate voted 54 -46 to reject the proposals put forward by the House of Republican’s. Despite the generally risk off tone across markets over the past 24 hours, a weaker US currency has propped the Australian dollar up overnight as it reached a high of 0.9279 by comparison. Opening this morning only marginally stronger at 0.9320 the RBA in their Policy Statement this afternoon are expected to leave the benchmark cash rate unchanged at 2.5 percent with investors instead listening closely for any underlying dovish rhetoric. Also of importance today will be the release of key manufacturing figures from China as well as local retail sales.   

• We expect a range today of 0.9270 – 0.9370

New Zealand Dollar

The New Zealand dollar has strengthened against a weaker greenback overnight with investors steering clear of US dominated assets on news the US government could be heading for a partial shutdown. Given the broadly weaker US dollar, the Kiwi has flourished under such conditions trading from an opening level of 0.8268 to reach an overnight high of 0.8332. Whilst such moves are set to be relatively short-term the next couple days could provide some fireworks as a US Government budget agreement must be struck by midnight in Washington to ensure 800,000 government workers remain in paid full-time positions. Stronger this morning at a rate of 0.8295 resistance up above 83 US Cents could well be tested if China’s PMI figures exceed expectation this morning.

• We expect a range today of 0.8270 – 0.8330

Great British Pound:

Adding to the sense of optimism surrounding Britain’s economy overnight mortgage approvals rose to their highest level in more than five years in August as the government looks to further accelerate their home-buying program. With figures also revealing a rise in house prices, a weaker Greenback only added to the momentum behind the Great British Pound which traded to an overnight high of 1.6201. Stronger this morning at a rate of 1.6188 the Sterling is also stronger when valued against the Australian dollar 1.7349 whilst weaker against the Kiwi 1.9479.

• We expect a range today of 1.7310 – 1.7480

Majors:

Demand for the US dollar has waned overnight as the debacle over a US government shutdown continued. Highlighting the discord between the Republicans and Democrats an even bigger battle looms given US lawmakers must reach substantial agreements to ensure the debt ceiling is raised from $16.7 trillion. Whilst treasury do have short-term measures to avoid such limits, measures will be exhausted as of October 17. Keeping in mind President Obama has publically stated the fragile US economy can ill afford another round of fiscal uncertainty, words will remain just that until the political deadlock is broken. Weighing on both global equities and the Greenback, markets have not gotten off to a good start given the week ahead is laden with key economic announcements including Central bank meetings from the BOJ, ECB, RBA and BOE. Add to that a speech by Ben Bernanke in St. Louis on Wednesday as well key labour market figures on Friday the week is simply laced with key risk events. Meanwhile this morning in currency moves the EUR/USD is stronger at 1.3524 whilst the USD/JPY is also pushing fresh ground at 98.248.

Data releases

• AUD: Cash Rate, RBA Rate Statement, Retails Sales m/m
• NZD: No data today
• JPY: Average Cash Earnings y/y, 10-y bond auction
• GBP: Manufacturing PMI
• EUR: Unemployment Rate, Spanish Manufacturing PMI, Italian Manufacturing PMI, Final Manufacturing PMI, Unemployment Rate
• USD: ISM Manufacturing PMI,