Financial Advisor

Gold Shines and takes some of the Sparkle off the Dollar Overnight - Forex Market Update

Weak Australian retail sales data reinforces a more cautious approach to rates



MAJOR HEADLINES – PREVIOUS SESSION

  • US Sep. Factory Orders out at +0.9% vs. +0.8% expected and -0.8% prior
  • US Weekly ABC Consumer Confidence out at -49 vs. -50 expected and -51 prior
  • US Oct. Total Vehicle Sales out at 10.45 mln vs. 9.80 mln expected and 9.20 mln prior
  • AU Oct. AiG Performance of Service Index out at 54.8 vs. 49.3 prior
  • JP Oct. Monetary Base out at +4.4% y/y vs. +4.5% prior
  • UK Oct. Nationwide Consumer Confidence out at 72 vs. 73 expected and revised 72 prior
  • AU Sep. Retail Sales out at -0.2% m/m vs. +0.5% expected and revised +0.7% prior
  • AU Q3 Retail Sales ex-Inflation out at -0.4% q/q vs. -0.5% expected and +1.9% prior
  • AU Sep. Building Approvals out at +2.7% m/m, +11.7% y/y vs. 2.3%/8.2% expected and revised -0.9%/0.4% prior resp.
  • HK Oct. PMI out at 54.6 vs. 51.8 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)
  • GE PMI Services (0855)
  • EU PMI Services (0900)
  • UK PMI Services (0930)
  • EU Euro-zone PPI (1000)
  • US Weekly MBA Mortgage Applications (1200)
  • US Challenger Job Cuts (1230)
  • US ADP Employment Change (1315)
  • US ISM Non-manufacturing (1500)
  • CA BOC’s Murray to speak (1550)

Market Comments:
The gold bars took on an extra sparkle overnight as the commodity powered some 3% higher amid a (somewhat delayed) reaction to news that the Indian central bank had purchased 200 metric tons of gold from the IMF as part of the latter’s plans to boost funding for various programmes. Valued at $6.7 bln, the deal was the largest purchase by a central bank in 30 years. Certainly the move caught some surprise given that the headline first hit the wires late in the NY session on Monday. Nevertheless, the surge galvanized currency markets into action and worked to stall the dollar’s rally in its tracks and brought most currencies back to near starting levels.
GBP was a notable beneficiary  from the dollar’s retracement after experiencing early weakness on the back of negative news headlines surrounding RBS and Lloyds, together with a weaker than expected construction PMI reading. However, a continued recovery in the housing market (Halifax house prices up 1.2% m/m vs. +0.6% expected) assisted the rebound, which managed it past opening levels. Nevertheless, tomorrow’s BOE meeting and the question of the extent of QE adjustment remains a cloud over the pound.
Once again it was the AUD that provided the excitement in the Asian morning session today. Retail sales for September were much weaker than anticipated, falling 0.2% m/m on a seasonally-adjusted basis against a consensus of +0.5%, while August’s numbers were also revised lower. The more dovish sentiment that had prevailed post-RBA yesterday looked to be firmly cemented in place after the data and expectations of a December rate hike were moved further to the background. The flip side to the retail sales data looked to be in the building approvals numbers as the headline numbers came in above forecast on both a monthly and annual basis. However, drilling down into the data and the “core” private housing approvals barely registered positive growth. The AUD was quickly 50 points lower and short-term interest rate yields edged off 5bp while futures reduced implied odds of a December rate hike to less than 50-50. However, the AUD held at support levels, and appetite for the currency still looked strong in Asia.
Australian Treasurer Swan also worked to place a dampener on sentiment when he commented that Australia’s economic recovery remains fragile, with some considerable challenges still ahead for the economy. He added that he expected to “rise substantially” and noted that the big decline in hours worked is dampening incomes.
A more cautious approach to the state of a domestic economy was also voiced by the Bank of Japan Governor Shirakawa. He stressed that the BOJ’s decision late last week to end its commercial paper and corporate bond purchases in December did not mean that there was a change in its monetary policy stance and the BOJ will maintain very accommodative monetary conditions. He noted that corporate activity was still low compared to pre-Lehman levels and the economy would take time to return to solid growth.
Looking ahead to today’s session, the late announcement following the second day of the FOMC meeting will be a major focus, and could dampen activity. Prior to that we have the prelude to Friday’s employment report, in the release of the ADP employment change and non-manufacturing ISM numbers. In Europe, it is the service sector PMI releases across various economies that dominate.

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