AUD weak in the knees again after negative employment report. US weekly jobless claims tick lower.


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand RBNZ left rates unchanged at 2.50% as expected

  • Japan Jul. Machine Orders fell -9.3% MoM and -34.8% YoY vs. -3.5%/-31.0% expected

  • Japan Aug. Domestic CGPI out at 0.0% MoM and -8.5% YoY vs. +0.2%/-8.4% expected

  • Australia Aug. Employment Change fell -27.1k vs. -15.0k expected

  • Australia Aug. Unemployment Rate steady at 5.8% vs. 5.9% expected

  • Sweden Aug. CPI rose 0.2% MoM vs. 0.1% expected

  • Norway Aug. CPI fell -0.2% vs. +0.1% expected. Underlying CPI fell -0.3% vs. 0.0% expected

  • UK Aug. Halifax House Prices rose 0.8% MoM vs. 1.0% expected and were down -10.1% YoY as expected

  • Bank of England kept rates steady at 0.50% as expected

  • Canada Jul. International Merchandise Trade out a -1.4B vs. +0.1B expected

  • US Weekly Initial Jobless Claims fell to 550k vs. 560k expected and 576k last week

  • US Weekly Continuing Claims fell to 6088k vs. 6200k expected and 6247k last week

  • US Jul. Trade Balance out at -$32.0B vs. -$27.3B expected and -$27.5B last month

  • Bank of Canada left rates unchanged at 0.25% as expected


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Weekly DOE Crude Oil and Product Inventories (1500)

  • US Fed's Lockhart to Speak (1630)

  • US Treasury Secretary Geithner to Testify on TARP oversight (1700)

  • Japan Q2 Final GDP Estimate (2350)

  • China Aug. Producer Price Index (0200)

  • China Aug. Consumer Price Index (0200)

  • China Aug. Retail Sales (0200)

  • China Aug. Industrial Production (0200)

  • Japan Aug. Consumer Confidence (0500)

Market Comments:

Aussie - data not suggesting perfection...

Another negative Aussie data point - this time the Aug. employment figure - continues to challenge whether Aussie's "priced for perfection" status could continue to come under fire. Aussie was a bit weak in the knees overnight, but nothing that looks like a capitulation so far. The 1-year forward expectations for the RBA tightening have actually fallen below what they were a month ago, as the market has priced out about 25 bps of hikes. Is this a new trend or just a hiccup? The continuing stream of data will help set up the next RBA meeting, in which the bank is likely to give a signal one way or another. Certainly, when looking at the likes of EURAUD, GBPAUD (!!), AUDCHF and AUDUSD, one wonders how much further the AUD bulls can take this one.

Norway Inflation

The very low CPI reading out of Norway may challenge the idea as well that the Norges Bank is ready to pull the trigger on a new monetary tightening cycle in the near future. In any case, the data today sparked a sharp sell-off in NOK, and EURNOK has a very pronounced line of support now in the 8.5500 area.

Bank of England maintains an even strain

GBP certainly seems to be making an effort to turn the corner here after the Bank of England left rates unchanged and declined to tinker with its Asset Purchase Program for now. It was the move to extend asset purchases at the last meeting on Aug 6 that sparked the recent weakening of the pound vs. the Euro from 0.8455 to 0.8800+. The 0.8800/50 zone in EURGBP certainly looks important for resistance in that pair and we have a hard time seeing a strong move higher considering the very dovish stream of comments from the ECB in the recent cycle.

US foreclosures still high

A number of recent data points in the US housing market have been encouraging and activity has certainly increased due to the first time home buyer tax credit. An article today from Bloomberg, however, points out that over 358k properties were notified they are in default, the sixth straight month of readings over 300k and only a 0.5% drop from July levels. Studies of the number of properties that are overdue on payments also ominously suggests that the supply of future defaults is still very large.

Bank of Canada

The Bank of Canada left rates unchanged at 0.25% as expected and repeated that it expected to remain at this low level through June of 2010. The BoC said inflation risks were to the downside and that the economy may grow more than forecasts in the second half of 2009. It also said that it has policy flexibility even at low rates (we are assuming this is a reference to potential for QE measures). There is not much to take home from these announcement. The interesting thing to note will be how much the BoC protests the strength of the loonie. The market thumbed its nose at the RBNZ's threats to go as far as cutting rates to stem NZD strength. Is there really any reason to continue to bid up the commodity currencies here on rate spread arguments when Aussie data is weak, and New Zealand and Canada are loudly protesting their currencies' strength? It's certainly a daring market. Also note, in the case of Canada, the widening trade deficit in manufacturing goods.

The US data today

The US data showed an improvement in the week initial and especially continuing claims, and the trade balance was not supportive of the USD, as the trade deficit ticked strongly higher. The future arc of the trade deficit is a vital component of the long term viability of the US dollar. A strong resurgence in US consumption is unlikely to take place anytime soon, certainly relative to the potential for consumption growth in the US's main export markets in the coming years, so the trend in the trade gap may (and must...) continue toward shrinking US deficits. The headlines noted that much of the increase in the trade deficit was due to auto sales - which if true could mean a large increase for the August deficit due to heavy purchasing of foreign auto makes during the cash for clunker auto-buying incentive program of late.

Looking ahead

Watch out for China's raft of data tonight and for the action in the bond market, which seems to have nine lives of late and is trying to claw its way higher again as equities try to stage a comeback ahead of the US as well.
USDJPY looked like it might try a reversal yesterday, but actually spiked to new lows briefly in this morning's trade. The greenback was on the ropes earlier, but is showing some interesting resilience as we go to press.
1.4620 is a key area in EURUSD. The USD will have to put up a lot of fight to reverse its recent break lower, however. Real hope for USD bulls starts with 1.4400 in EURUSD. It is a bit interesting that we are well off the highs in AUDUSD and lows in USDCAD even as EURUSD has posted new highs over the last couple of days, as the commodity currencies used to be the ring-leaders in the anti-USD gang.