FXS: Dollar and Yen Gain on Increased Risk Aversion
The dollar fell versus the yen but rallied against other key currencies Wednesday. The yen and greenback were supported by debt deflation and deleveraging. It took a long time for asset prices, commodities and the higher-yielding currencies to appreciate; now the process is running in reverse at a faster speed as risky assets and commodities are sold and funds are repatriated. The yen rallied on carry-trade unwinding as international equity plunged. Sterling fell to the lowest level in more than five years after Prime Minister Gordon Brown predicted a UK recession. The Canadian dollar declined the most since at least 1971 as crude oil dropped to a 16-month low. The Australian dollar pared loses after the Q3 CPI accelerated more than forecast, prompting speculation the Reserve Bank of Australia will lower interest rates less than previously expected. Emerging-market assets and currencies are plunging on deleveraging and global recession concerns.
The EUR/USD fell to the lowest level since November 2006 on speculation the European Central Bank will cut interest rates as the global economy contracts. The ECB should cut rates dramatically to mitigate severe asset deflation and stimulate a possible recessionary economy. The pair fell nearly 20% since its peak of 1.6036 on June 15. There are support in the 1.28 and 1.25 areas and resistance in the 1.35 and 1.40 areas.
MBA mortgage applications for the week ending October 17 fell 16.6% to 408.1, its lowest level since 2000, from 489.3 in the previous week despite the decline in long-term borrowing costs, the Mortgage Bankers Association reported. US new-home sales will drop 12% in 2009, according to MBA forecasts. The data suggest a continued US housing-market downturn as global recessionary fears accelerate.
The Canadian leading economic indicators index fell 0.2% m/m in September, led by a decline in stock prices, following an upwardly revised 0.3% m/m increase in August, Statistics Canada reported.
Canada’s retail sales posted the first decline in six months, falling 0.3% m/m to C$35.9 billion ($28.7 billion) in August after increasing 0.1% m/m in July, Statistics Canada said. August retail sales rose 4.1% y/y. Excluding new car dealers, used and recreational motor vehicle and parts dealers, retail sales fell 0.3% m/m in August but rose 7.2% y/y.
The Bank of England voted unanimously to cut its benchmark interest rate a 50-basis point to 4.5% on October 8 in a coordinated easing monetary-policy action with other global central banks, on signs that the UK had entered a recession, according to minutes of the October 8 meeting released today. The UK economy “had deteriorated substantially” and “the risk of a sharper monetary contraction had risen, and hence of a more pronounced slowing in activity and employment than was needed to keep inflation at target in the medium term,” the BOE Monetary Policy Committee said, judging that “the balance of risks to inflation in the medium term had shifted decisively to the downside.” The MPC, thus, agreed that “given the global nature of the financial market turbulence, there was a strong argument for participating in the proposed co-ordinated international action,” according to the minutes.
Asia-Pacific
Japan’s all-industry activity index fell 1.8% m/m in August, following July’s 0.8% m/m increase, the Ministry of Economy, Trade and Industry said. The tertiary industry index declined 1.4% m/m in August after rising 1.2% m/m in July, while the manufacturing index dropped 4.1% m/m following July’s 1.1% m/m increase. The construction index rose 1.9% m/m following July’s 1.7% m/m decline.
Japan’s supermarket sales fell 2.2% y/y in September after declining 1.0% m/m in August, the Japan Chain Store Association said. The most notable declines were seen in clothing sales, which dropped 5.2% y/y, and food sales, which fell 2.3% y/y. Sales in services rose 3.5% y/y.
The Australian consumer price index climbed a more-than-expected 5.0% y/y, indicating Australia’s inflation accelerated in Q3 at the fastest rate since 2001, following a 4.5% y/y gain in Q2, the Bureau of Statistics said. The Q3 CPI increased a more-than-forecast 1.2% q/q after rising 1.5% q/q in Q2. The more-than-expected inflation rise could mean a smaller interest-rate from the Reserve Bank of Australia at its November 4 meeting.
