The US dollar is posting minor losses against most of the major
currencies today. The Japanese yen is
the exception, as the greenback continues to straddle JPY105.
There have been several developments today, and the US also has a full
economic calendar today. The most important of the developments was
the upbeat message from the Reserve Bank of Australia. The Australia
dollar is easily the strongest currency on the day, rising 0.7% against the
greenback. It is poised for another run the $0.7700 area that has blocked
the upside for the past several months. Australia’s AAA 10-year sovereign
bond yield rose three bp to 2.80%.
The two-year yield rose the same among to
1.675%.
The RBA said as it kept the cash
rate at a record low 1.5%, that current rates were sufficient to sustain the
expansion. There was also the now regular concern over property
prices. The RBA statement also acknowledged that currency appreciation
could complicate the situation. The important takeaway is that the RBA
appears to have shifted to a neutral bias and a rate. The market has reduced
the odds of a rate cut next year to around one-in-three. Separately,
Australia’s Oct manufacturing PMI rose to 50.9 from 49.8. The PMI is
recovering from the sharp fall in August (to
46.9 from 56.4), and is back above the 50
boom/bust level for the first time since then.
China’s PMI also surprised on the upside. The official
manufacturing reading rose to 51.2 from 50.4. This is a two-year high, well above the 50.3 median forecast in the
Bloomberg survey, and the third month above 50. The non-manufacturing PMI
rose to a new high for the year. It stands at 54.0 from 53.7.
Caixin’s manufacturing PMI rose to 51.2 from
50.1. This is also a two-year
high. It gives further support to our contention that Chinese
policymakers have the will and wherewithal
ensure a soft economic landing.
As widely expected the Bank of Japan left policy on hold (7-2
vote). As had been tipped, the BOJ pushed out when it is anticipating reaching its inflation
target to around FY18 from somewhere in FY17. The BOJ’s message was still
downbeat, recognizing the risks to growth
and inflation were on the downside, and that recent price developments were of
concern. The BOJ has not closed the door to additional measures.
Separately, its manufacturing PMI was trimmed
to 51.4 from the 51.7 flash, and 50.4 in September. It is the
highest since January.
Australia, China, and Japan PMIS suggest Q4 is off to a good start.
The UK broke the streak. Its October
manufacturing PMI slipped to 54.3 from a revised 55.5 (from 55.4) in
September. This was a little more
than most had anticipated. Recall that the PMI had slumped to 48.2 in
July (from 52.3 in June) after referendum shock. It subsequently rebounded sharply to two-year highs in September.
It remains above 12 and 24-month averages
(51.9 and 52.3 respectively).
Sterling had already seen yesterday’s bounce on Carney’s one-year
extension and the weaker US dollar tone. It reached $1.2280 in early
in the European session and a low in North America yesterday near
$1.2140. The 20-day moving average is found a little above today’s
high. Sterling has not closed above this moving average in over a month. Above there, the high
from the second half of October (~$1.2330) comes into view.
The euro is also flirting with its 20-day moving average
($1.1005). Above there, the
$1.1030-$1.1040 area beckons. That area houses a retracement and previous
congestion. Support now is seen in the $1.0960-$1.0980 area. Its fortunes
for the remainder of today’s session will likely be determined by news from the
US.
The US news is expected to be upbeat. The Markit is expected to
confirm the preliminary estimate at 53.2, the highest since July
2015. The ISM estimate is expected to continue to recover from the
49.4 hit in August. It stood at 51.5 in September. October
auto sales will also be reported.
Sales are expected to nearly match the September’s 17.65 mln unit pace, though
foreign brands are expected to have picked up market share.
Canada reports August GDP. The median forecast is for a
0.2% rise after 0.5% jump in July, as the economy recovered from the wildfires’
impact. The year-over-year pace may be stable at 1.3%. A
disappointing report would likely weigh on the Canadian dollar, as the greenback
continues to hover around CAD1.34.
Although the API inventory estimate is
reported after the markets close, commodity prices are radar
screens. Copper and nickel prices are extending gains for a seventh
session. Copper, nickel, aluminum, and zinc are extending their rallies.
Gold is near a one-month high. On the other hand, oil prices are near
one-month lows and consolidating yesterday’s large drop.
Technically, there looks to be scope for another dollar drop in the December
light sweet crude oil contract.