New Zealand dollar
US equities volatility shakes NZD. The NZD continued to follow US equity markets throughout Friday morning as risk aversion remained the dominant driver. The NZD opened softer however the Dow Jones recovery gave the kick start for a run up to the day’s highs of 0.7822. Early afternoon’s release of figures from the Real Estate Institute of NZ showed the monthly median house price falling 0.4% in October, while the number of sales recovered from September lows. Overnight the NZD has fallen 2.5% to open around 0.7600 as poor US data and credit concerns caused another bout of carry trade unwind.
Australian dollar
AUD plummets on further risk aversion. The AUD moved higher on Friday as interest rate spreads widened further between Australia and the US. This coupled with surging commodities prices saw the AUD back above 0.9300. The bounce was brief with the AUD taking a hammering overnight on the back of more US equities sell offs and news from Fannie Mae, the biggest source of money for US home loans, that their third quarter loss doubled to $1.39 billion. This morning the AUD opens around 0.9040, down 2.8% from Friday’s high
Major currencies
Yen takes the spotlight. The USD posted a modest rebound on the day’s trade as a sharp sell-off in the Dow Jones Industrial Average sent carry trade currencies significantly lower through the period. The biggest winner on the day was the Japanese yen which strengthened from 112.70 to a 1½ year high of 110.50 against the USD. The euro meanwhile held its ground against the USD and at one stage peaked to an all time high of 1.4752 before settling back to 1.4675 where it opens this morning. Economic data in the US painted a poor picture for future growth and inflation prospects, with import price index inflation sharply higher and UoM consumer confidence at its worst in two years.
Economic data and events
US UoM consumer sentiment down 5.9 pts in Nov. Consumer sentiment fell sharply in early November, probably as much a function of gasoline prices (which have just started rising again) as housing/credit crunch/stock market issues. The sharp rise in inflation expectations supports that view. Sentiment on this measure is now back around the levels seen in the immediate aftermath of hurricane Katrina. Prior to that, sentiment has not been this depressed since the early 1990s recession. Sentiment is not a good predictor of consumer spending but this development does increase the risk consumer spending slows sharply in the fourth quarter. Yesterday we heard that last month was the worst October for retailers in over a decade.
US trade deficit $56.5bn in Sep. The trade deficit was revised down by $800mn in August and fell even further in Sep, when exports once again comfortably outpaced imports. That export strength was despite a near 8% fall in civilian aircraft sales to foreign customers (consistent with Boeing data), nicely illustrating the point that the weaker US dollar is boosting the competitiveness of US exporters. This result means that net exports added about 0.4 ppts more to Q3 GDP growth than estimated by the Commerce Dept last week. Recall too that inventories data were much stronger than expected this week – it is now likely that Q3 GDP will be revised up from 3.9% annualised to closer to 5.0% (on 29/11). Also, import prices posted another sharp 1.8% oil price driven gain in October.
Japanese September industrial production unrevised at -1.4%mth, 0.8%yr. Capacity utilisation fell by 1% to an index level of 108.6.
The UK trade deficit widened to an all-time high in Sep, of £7.8bn, with exports falling 1.0% (autos very weak) and imports surging 2.4% (oil and autos strong).
Canadian trade surplus $2.6bn in Sep. Just as the US trade deficit is falling as the dollar weakens, the Canadian trade surplus is shrinking as its dollar strengthens. September’s surplus was the lowest in almost nine years. The export weakness was broad-based; consumer goods imports were especially strong. Net exports will be a significant drag on Canadian Q3 GDP growth.
