News and views
Risk asset markets were in a more buoyant mood last night, the S&P500 closing up 0.7%. There was little to attribute the daily turnaround to, apart from perhaps the ADB’s upward revisions to growth forecasts for the Asian region (from 3.4% to 3.9%, ex-Japan). US data (the Richmond factory survey, and house prices) continued the recent run of positive readings but missed consensus. Markets are now looking to tonight’s FOMC for any changes to the stimulus programs, but tomorrow’s G20 is expected to be of only minor interest. The US 2yr treasury note auction was a resounding success according to the bid-cover measure which hit a two year high, and foreign participation did not appear to be hurt by the Japanese holiday. 10yr notes are 6bp lower in yield from Sydney’s close.
The US dollar continued to weaken from London’s open, touching a new 2009 low (just) at 76.00, compared to Thursday’s 76.01. EUR made a 209 high at 1.4821, while even safe havens yen and Swiss franc gained against the dollar, to 90.94 and 1.0216, respectively.
AUD continued its domestic session rally to reach 0.8759 during London’s morning, and then congested around there. It missed Thursday’s high by only 16 pips.
NZD outperformed most following the bullish current account and positive surprise on the milk payout from Fonterra, easily posting a 2009 high at 0.7244. AUD/NZD fell below its multi-month channel to 1.2083, and sits at the lower boundary of 1.2125 as we write.
US Richmond Fed factory index steady at 14 in Sep. This is fifth consecutive positive reading for this regional index, adding weight to the view that the US industrial sector is expanding again. Of particular note, the jobs index posted its first positive reading since late 2007. However the Richmond services survey slipped from –8 to –12 in Sep.
US house prices up 0.3% in July, according to the FHFA (govt) index, their third consecutive rise.
Canadian retail sales fall 0.6% in July. This was surprisingly weak, but was led by a sharp drop in gasoline sales, a function of lower prices. That said, furniture, food and clothing sales also fell in July, so there was some underlying softness in the report.
Outlook
AUD/USD and NZD/USD outlook today: The AUD and NZD rallies since March remain intact. NZD last night reached its initial target of 0.72, and 0.7385 now beckons. Buying dips in AUD at 0.8675 and in NZD at 0.7040 is our preferred strategy today. NZ’s Q2 GDP is expected to show -0.2% today, but may surprise on the upside, supporting NZD.
