News and views
US equities opened strongly again, on sentiment and expectations of good Q3 earnings, rather than any hard news, fading slightly over the past few hours to be up 1.0% (S&P500) as we write. Oil (+0.3%) and copper (+1.7%) moved in line with equities, although oil’s $1 fall in the last hour was more abrupt. Gold made an all-time high of $1044, benefiting from a report yesterday that the US dollar would be replaced as the oil invoicing currency (Iran commented further this morning to that effect). The risksupportive environment hurt US treasuries, the 3yr auction average yield of 1.445 slightly worse than the forecast 1.441. The 10yr note yield moved 4bp higher.
After the US dollar-negative press yesterday afternoon, last night’s equities rally rendered it vulnerable to a break below 75.83, the 2009 low, but it held 20 pips above that. EUR rallied to 1.4762, fading to 1.4708 this morning. The big performances came from the commodity bloc – AUD, NZD, and CAD. Consensus-beating Canadian data (PMI, building permits) helped USD/CAD to a fresh low of 1.0547.
AUD continued to benefit from the RBA hike (25bp) after Sydney closed, moving from 0.8670 to 0.8920, a new 2009 high. A host of articles appeared overnight opining on the RBA’s trajectory from here.
NZD also broke to fresh ground, at 0.7379, and slipped back to 0.7310.
AUD/NZD was one-way traffic higher after the RBA, and at 1.2150 is comfortably inside the five month old channel.
No major US data to report.
Canadian building permits jumped 7.2% in August, failing to fully reverse July’s 10.0% fall, but still maintaining an uptrend. Recent volatility was due in large part to a municipal strike in Toronto, now over. In other news, the September Ivey PMI rose from 55.7 to 61.7 (but it is not seasonally adjusted and always rises in September).
UK industrial production fell 2.5% in August. This very steep decline was apparently in part due to widespread factory shut-downs over the summer. This is not however a statistical/seasonal distortion, and as such it represents a permanent loss of output, even though a bounce in growth is likely in the September number. Prospects for a positive UK Q3 GDP growth rate have taken a hit following this news. In other news, house prices rose 1.6% in September, according to HBoS, for an annual pace of decline of –7.4%.
Outlook today
AUD/USD and NZD/USD outlook today: Both currencies broke previous 2009 highs last night, suggesting another leg higher is in store as long as those break levels hold today. For AUD, 0.8850 should now provide support, while for NZD that level is 0.7300.
