News and views
The US dollar followed through from the previous day’s minor reversal signal, bouncing on US and European equities’ weakness. Concerns that an $8,000 tax-credit for first time homebuyers in the US will be phased out dented confidence in equities, the S&P500 currently down 0.8%, and the Vix riskaversion barometer up 10%. Financials and banks were hit harder by speculation Bank of America may be required by the government to raise $45 billion in equity before it’s allowed to exit the TARP program, and some more downgrades by influential analyst Dick Bove. Adding to sectoral woes was a report that four of the top five US newspapers’ circulations had declined. Commodities looked toppish, oil falling 1.9%, and copper (-1.3%) currently forming a key reversal. US 10yr notes made a two-month yield high of 3.58%, up 9bp from Sydney’s close, despite a strong 5yr auction.
Reversal signals have increased in frequency over the past month, and EUR joined the club on Monday, making a fresh 2009 high of 1.5063 during Asia, but collapsing during NY to the current 1.4850 level. JPY continued its 3-week run of weakness, as officials now seem less willing to tolerate currency strength, and USD/JPY nudged higher to 92.39.
AUD showed its vulnerability to a reversal in risk appetite, trading sideways around 0.9260 until the NY session, when it fell 1.3% to 0.9140.
NZD was also belted, from 0.7565 to 0.7460, PM Key’s opinion the RBNZ would maintain its dovish stance taking speculators out of long positions ahead of this Thursday’s meeting. AUD/NZD was relatively calm between 1.2235 and 1.2295.
US Dallas Fed factory index rises from -6.4% to -3.3% in Oct. Like most of the other regional Fed factory surveys, the Dallas Fed index has been creeping higher, but unlike the others it is still at a level consistent with industrial contraction. Indeed its last positive reading was exactly two years ago, in October 2007.
US Chicago Fed national activity index for September slipped for the second month running, from -0.7 to -0.8. This is not a factory index nor does it pertain just to the Chicago area – rather, it is an index compiled from 80+ national economic indicators by the Chicago Fed office. Up until July it was improving sharply; since then it has lost some momentum.
German consumer confidence slipped from 4.0 to 4.0 in “November”, though note the survey was actually conducted in early October.
Outlook
AUD/USD and NZD/USD outlook today: The risk of the recent reversals in these currencies turning into something longer-lasting sees us adopting a neutral stance on the day. AUD should be well supported at 0.9080-0.9110, and a break below would be significant. NZD is close to its key support level of 0.7455 so watch for a potential break downwards today.
