NZD confined to narrow range trading
The NZD remained entrenched within a narrow 20-point range on Friday, with no news or data to provide the currency with any short term direction. Overnight saw similar price action, with the NZD again confined to a tight 20-point range; we open this week in the middle of the currency’s recent trading band around 0.6650.
AUD falters at 0.7700
After having suffered from profit taking the previous day the AUD recovered on Friday, at one stage trading just shy of 0.7700. However, the tone from last week’s Reserve Bank statement, and soft economic data, are preventing buyers from taking the AUD too much higher for now. Some buying was again noted in the overnight session, however the AUD was again unable to break through 0.7700, and opens the new week around 0.7665.
Chinas plans to diversify FX reserves hits USD hard
Friday saw the USD continue to weaken on concerns that China plans to diversify its USD foreign exchange reserves. With China holding 1 trillion in USD reserves, alternative major currencies and gold rallied. The euro peaked late Friday at 1.2901 – it’s highest since 21 August 06. However profit taking and poor French GDP growth, which was zero growth for Q3, has cut gains back to today’s open of 1.2848. Sterling hit 1½ year highs against the USD late on Friday also on the back of China’s plans to diversify. The GBP reached a high of 1.9180 supported also by the recent Bank of England rate hike on Thursday and the chance of a further hike not being written off. The yen failed to gain any strength from the dollar weakness and opens today around 117.55.
Japanese machinery orders fell 7.4%, -1.5%yr. This is a softer outcome than expected from this volatile series. It is also a weak end to the quarter, implying a softish outcome for capital spending in the Q4 national accounts. That said, the projected 5.7% gain in Q4 orders is a solid outcome if achieved. This release makes us somewhat less confident that the December meeting will see the second hike in the cycle. We would argue however, that a) the series is volatile b) the Bank expects investment to slow, and they only need their projection to be met for rates to rise, and c) they will pay great attention to both the MoF corporate survey and the Q4 Tankan in formulating their short term policy response.
No major US data. Fed chairman Ben Bernanke avoid comment on current economic and policy issues in a speech when he instead discussed the role of monetary aggregates in historical policy-making.
French GDP growth stalled in Q3. Much weaker than the 0.5% consensus forecast, GDP growth failed to grow at all, following Q2’s impressive - but clearly unsustainable - 1.2%. No detail is available yet. This will make out 0.7% forecast for Euroland GDP growth, due 14/11, much harder to achieve.
