With news that the U.S. Senate most likely will follow the House of Representatives as it looks like Democrat James Webb will take the lead for Virginia and after yesterday’s resignation of Defense Secretary Donald Rumsfeld, the focus turned away from politics and towards economic data released out of the U.S.
The U.S. dollar initially rose to two week highs against the yen and gained against the Euro after U.S. trade deficit data was released. Although the trade deficit for September narrowed to $64.30 billion in September, consumer sentiment data came in below forecasts drove the dollar to session lows against major currencies. The University of Michigan's consumer sentiment index declined to 92.3 - below forecasts - for a reading of 93.6. Look for the dollar to remain well entrenched within its recent ranges.
The Euro was little changed against the dollar, but hit a record high against the yen on technical moves as focus on the Euro zone moved to yield differentials between Europe and Japan. European Central Bank Executive Board member Lorenzo Bini Smaghi stated that Europe's economic recovery may call for a faster rise in rates than originally thought. Interest rates are currently sitting at 3.25 percent but should reach 3.50 percent by December.
The Japanese yen weakened against the dollar and Euro as Bank of Japan deputy governor Kazumasa Iwata stated that the BOJ will gradually raise rates, but only if the economy moves in line with the BOJ ‘s expectations. The currency fell on the market’s speculation that Japan’s central bank will hold off on an interest rate raise in December and wait until after the first of the year. Look for the yen to remain under pressure as the market scrutinizes any upcoming economic data out of Japan.
Sterling weakened broadly as it succumbed to selling pressure after the Bank of England announced, as expected, an interest rate hike to 5 percent. The market, however, focused on the accompanying statement which gave few clues as to whether another move upwards will take place at the BOE’s next meeting in February. Look for the pound to remain under pressure on the back of the BOE statement.
The Canadian dollar rose against the dollar boosted by domestic trade surplus numbers, which came in better than expected. Canada's trade surplus shrank 5.3 percent in September from August to C$3.97 billion. Gains in the Canadian dollar will remain limited as America’s trade deficit narrowed more than expected in September. Look for Canada’s currency to continue to hold close to its recent rages.
The Australian dollar weakened to a one and a half week low against the dollar after the release of employment data showed a fall out in October employment of 32,100 jobs, while the October jobless rate surprised the market by falling to a 30-year low of 4.6 percent. The negative job creation news prompted the market to speculate that the central bank may be done raising rates after an increase to 6.25 percent yesterday. With the currency’s gains seemingly peaked, look for the Aussie to remain under pressure as it tries to recover from today’s losses.
The New Zealand dollar fell to a one-and-a-half week low after data sighted an unexpected decline in employment in the third quarter. Employment unexpectedly fell 0.4 percent in September after a revised 0.9 percent gain in the previous quarter, while the unemployment rate edged up to 2.8 percent from 3.6 percent. The news reinforced expectations that New Zealand’s central bank will hold interest rates steady.
The Mexican peso strengthened slightly this morning, but still remained under pressure as the market awaits this afternoon’s release of the Consumer Price Index (CPI). Expectations are for a release of 4.4%, which would indicate a 0.31% increase from last months release. Central Bank Governor Guemez, however, feels that inflation will start to decline next month. Look for Mexico’s currency to remain under pressure ahead of the CPI release.
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