• USD: Higher, Russia plans to maintain current holdings of US treasuries, FDIC seeks insurance prepayment
  • JPY: Higher, Japan supports USD reserve status and will not rule out intervention
  • EUR: Lower, Trichet warns of slow recovery and says interest rates are appropriate/exit tied to price risk
  • GBP: Higher, CBI retail sales come in stronger than expected
  • CAD and AUD: AUD & CAD lower, RBA rates may rise by year end, BOE warns on CAD strength

Overview

USD traded mixed Tuesday with GBP supported by report of stronger than expected September CBI retail sales, JPY pressured by statement from Japan's Finance Minister Fujii that he has not ruled out intervention in Forex markets, and EUR trading lower pressured in cross trade to the GBP and by report that Russia cut interest rates. The Russian central bank cut its main interest rate to 10% from 10.5%. The Russian rate cut is seen as a sign that the impact of the global crisis may not have completely passed. EUR was also pressured by statement from ECB President Trichet that he supports a strong USD. Russia also said they plan to maintain their current level of US reserves which is around 30%. The commodity currencies were mixed with the AUD initially supported by RBA rate hike speculation. RBA watcher McCrann says he expects the RBA to begin to hike rates in November or December. Commodity currencies turned lower tracking weaker US equities. There was limited reaction to a statement from World Bank President Zoellick warning that there are viable alternatives emerging to the USD reserve currency status and that the EUR could be a respectable alternative to the USD. USD maintained a modest bid save for losses versus the GBP with support from a report that the FDIC will ask US banks to prepay insurance to help the FDIC bridge its funding gap and in reaction to a statements from Japanese officials that Japan should support the USD reserve status. US economic data was mixed with the Case Shiller Home Price Index declining by less than expected and consumer confidence posting an unexpected drop. USD traded higher after the release of the unexpected drop in consumer confidence. The report generates concern about the strength of the US recovery and sparked safe haven USD demand. USD was also supported by hawkish comments from the Fed’s Fisher. Reuters reports that the Fed’s Fisher said that when it comes time to tighten the Fed will move as quickly and intensely as it pursued monetary accommodation.

Today’s US data:

July Case Shiller Index declined by 13.3%, a reading of -14.2% was expected. September consumer confidence declined to 53.1, a reading of 57 was expected.

Upcoming US data:

On September 30th September ADP employment will be released expected at -212k compared to -298k last month. Final Q2 GDP will also be released on September 30th expected at -1.1% along with September Chicago PMI expected 51.2 compared to 50 last month. On October 1st initial claims for the week ending 9/26 will be released expected at -525k compared to -530k last week. August personal income and consumption will also be released on October 1st expected at 0.1% and 1% respectively. August construction spending, September ISM index and pending home sales index will also be released along with September domestic auto sales on October 1st. Construction spending is expected unchanged at -0.2%, the ISM index is expected 54 compared to 52.9 last month, pending home sales are expected at 99.1 compared to 97.6 in July. On October 2nd September unemployment will be released expected 9.8% compared to 9.7% with nonfarm payrolls at -188k compared to - 216k last month. August factory orders will also be released on October 2nd expected at 1.1% compared to 1.3% last month.