• USD: Higher, housing starts rise less than expected, PPI falls more than expected, stocks slide
  • JPY: Higher, JGB yields rise to a two month high as Japan’s bond issuance may top ¥50 trln
  • EUR:Lower, EU and ECB officials express concern about EUR strength, German PPI contracts
  • GBP: Higher, public sector borrowing hit a record high in September
  • CAD and AUD: AUD & CAD lower, hawkish RBA minutes, BOC rate policy steady - warns on growth

Overview

USD traded at a new 14 month low in overseas trade pressured by a statement from Fed Chairman Bernanke calling for action on global imbalances and improving risk sentiment fueled by report of better than expected earnings at Apple. Bernanke's comments imply that a weaker USD will be needed to redress global trade imbalance. The NY Fed also said that it is testing exit strategies but this should not be read as a sign the Fed is about to withdraw liquidity. AUD initially rallied in reaction to hawkish RBA policy minutes but turned lower in US trade pressured by a drop in crude and US equities. USD erased early looses with EUR gains limited by comments form EU and ECB officials expressing concern about the weak USD with an advisor to French President Sarkozy warning that at some point Europe may have to act against EUR strength. In addition, an unidentified Chinese government official called for the reversal of the USD decline. GBP gains were limited by report that UK public sector borrowing hit a record high in September. JPY edged higher despite report that Japan plans to sell more bonds to cover the recent shortfall in tax revenue caused by the global recession. JPY was supported by rise in JGB on yields. The rise in JGB yields reflects concern about additional supply. The BOC elected to hold rate policy steady as expected, expressed concern about CAD strength and CAD traded lower. The BOC says strong CAD offsets good economic news. US economic data was mixed with PPI falling more than expected and housing starts rising less than expected. USD edged higher after the release of today's data as the reports point to a fragile US economic rebound and equities turned lower. The main driver for the Forex trade remains risk appetite.

Today’s US data will: 

September PPI falls 0.6%, a 0.1% rise was expected. Core PPI falls 0.1%. September housing starts rise 0.5% to 590k, a reading of 610k was expected.

Upcoming US data: 

On October 22nd, initial jobless claims will be released expected 510k compared to 514k last month. Leading indicators for September will also be released on October 22nd expected at 0.5% compared to 0.6% last month. On October 23rd September existing home sales will be released expected at 5300k compared to 5100k last month..