Focus switches to G-20 but its impact on currencies looks limited


MAJOR HEADLINES – PREVIOUS SESSION

  • US FOMC leaves rates unchanged

  • NZ Q3 Westpac Consumer Confidence out at 120.3 vs. 106.0 prior

  • JP Aug. Trade Balance out at ¥185.7 bln vs. ¥157.0 bln expected and ¥377.9 bln prior

  • JP Aug. Exports out at -36.0% y/y vs. -36.5% expected and -36.5% prior

  • JP Aug. Imports out at -41.3% y/y vs. -41.6% expected and -40.8% prior

  • AN Aug. HIA New Home Sales out at +11.4% m/m vs. +1.0% prior

  • JP Jul. All Industry Activity Index out at +0.5% m/m vs. +0.8% expected and +0.1% prior

  • JP Aug. Supermarket Sales out at -3.4% y/y vs. -4.8% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Sweden Consumer Confidence (0715)

  • Sweden PPI (0730)

  • GE IFO Survey (0800)

  • HK Trade Data (0830)

  • UK BOE’s Dale to speak (1215)

  • US Weekly Jobless Claims (1230)

  • US Treasury’s Allison to speak (1330)

  • US Existing Home Sales (1400)

  • US Fed’s Evans to speak (1430)

Market Comments:

There was something for everyone in last night’s FOMC statement with doves welcoming the fact the “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period” , while hawks latched on the (marginally) more optimistic tone for the economic outlook. The decision to extend the timeframe for the MBS and agency asset-buying program (though not increasing the size) was seen as a positive with a quasi-slowing of buying seen as a fore-runner to a slow, protracted removal of stimulus measures.

The kneejerk reaction to the statement seemed to indicate that the doves were more in control, with the dollar sliding further and Wall St putting on a good show. However, perhaps more of a testimony to market positioning (and today’s G-20 meeting now under the spotlight), risk soon took a dive and the dollar rebounded and Wall St reversed into negative territory.

While the dollar’s slide was in full flight we saw further evidence that some central banks/authorities are becoming uncomfortable with the lofty levels of their own respective currencies. French authorities were reportedly “concerned” about the current level of the EUR (in contrast to ECB’s Weber who had said the behavior of FX markets (sic EUR?) was not out of line with (recent fundamentals). In addition, BOC’s Longworth said that recent CAD strength remains a risk to growth but perhaps more significantly there were unconfirmed rumours that the RBNZ sold NZD in the market as the Kiwi had risen dramatically over the past two sessions following a spate of stronger data. The central bank chatter has continued into Asia this morning with the Taiwan central bank actually calling traders asking them to reduce USD shorts.

Activity in Asia kept to ranges with the dollar’s recovery stalling early-morning as Tokyo markets reopened after a long break. However, with momentum severely lacking, major currencies remained below key pivot points and the USD index managed a 0.45% rally into lunch.

With the G20 looming and talk of redressing global imbalances reportedly a top priority on the agenda, today’s trade data from Japan appeared to suggest that the job was being done without any additional effort! Japan’s exports continued to slump, showing a 36.0% decline y/y though imports were equally despondent with a 41.3% annual contraction. As a result, the trade balance was marginally higher than expected at ¥185.7 bln, but still below July’s ¥377.9 bln.