AUD, NZD Reverses Higher As JPY Falters

The Australian Dollar was mostly stronger against major currencies through the European session as AUD/USD reached US$ 0.9376, EUR/AUD sank to A$ 1.4418, AUD/JPY reached ¥92.75, and GBP/AUD retreated to A$ 1.7145. The carry trade returned to favour today following a couple of days of unwinding that saw AUD and NZD sold for short JPY covering. Australian data saw August job vacancies print at +3.1%, up from the prior print of -7.3%, but the labour market’s bias still remains a higher unemployment rate. The markets are now pricing in about a 60% probability RBA will reduce its official cash rate target by April, and Aussie yields are at six-week lows. Japanese investors purchased ¥91.3 billion more in Aussie debt than they sold in July, the largest addition in one year. BoJ data reveal that Japanese fund managers had ¥18 trillion invested in A$ debt and equity markets in 2012, equivalent to about 12% of Australian GDP.

The Euro turned in a mixed performance against major currencies through the European session as EUR/USD fell to US$ 1.3510, EUR/GBP weakened to £0.8405, EUR/CHF improved to CHF 1.2309, and EUR/NZD slumped to NZ$ 1.6349. EUR gave back some recent gains that were notched after ECB officials confirmed the central bank will inject additional LTRO liquidity if it deems it necessary to support financial institutions. Spanish PM Rajoy verbally intervened in favour of a weaker EUR today, adding his country does not require additional austerity measures to satisfy its 2013 deficit goal. IMF reported its approval of a €770 million disbursement to Ireland. Greece’s Deputy PM Venizelos reported his country will not require a third bailout. August Eurozone M3 money supply data are due today.

The Japanese yen underperformed against all major rivals through the European session as USD/JPY gained to ¥99.10, EUR/JPY bettered to ¥133.93, GBP/JPY rallied to ¥159.24, and NZD/JPY retreated to ¥81.79. JPY gave back some gains earned over the past couple of days as some carry trades were unwound. The 20-year JGB is now yielding below 1.55%, its lowest level since 10 May and an indication that short yen carry trades have been unwound with proceeds being invested in the Japanese credit markets. Japanese media reported the government “will study a corporate tax cut and advise public pension funds to raise allocations of risk assets.” It is likely official Japanese investment assets will increasingly be invested in overseas markets to help reduce upward pressure on JPY, and in search of greater yield. PM Abe is expected to announce an economic stimulus package on 1 October, the same date he plans to announce his decision on whether the country’s sales tax will be increased. CPI and investment flows data are due tomorrow.

The U.S. Dollar was mixed against most rivals through the European session as GBP/USD fell to US$ 1.6065, USD/CHF appreciated to CHF 0.9108, USD/CAD gained to C$ 1.0323, and NZD/USD advanced to US$ 0.8269. Richmond Fed’s Lacker spoke in Sweden today and critically noted the “direct economic effects” from the Fed’s QE program have been “minimal,” adding QE may result in “political” problems for the Fed. New York Fed’s Dudley yesterday said the Fed must be “humble” with regard to uncertainty concerning the eventual taper of QE, and called for additional financial stability in the US. The US Senate voted 100-0 to advance a bill to keep the government operating when the next fiscal year begins on 1 October. Treasury Secretary Lew indicated the debt ceiling may be breached on 17 October. Yesterday’s US numbers saw August headline durable goods orders print at +0.1% while the ex-transportation component printed at -0.1% and other core measures rallied to the positive side. August new home sales surprised to the upside with a +7.9% m/m climb. Today’s data include Q2 GDP and August pending home sales. Minneapolis Fed’s Kocherlakota speaks later today.

Gold and Silver were marginally weaker through the European session as Gold fell to US$ 1329.90 and was capped at $ 1336.50 while Silver depreciated to US$ 21.643 and was capped at US$ 21.838. The precious Metals complex is seeking to register a third consecutive daily gain as traders weigh the timing of the Fed’s QE taper against the backdrop of slower sovereign demand for Gold and a possible closure of the US government. Gold traded below the $1300 figure last week for the first time since early August.

Crude Oil was better through the European session as Brent futures gained to US$ 107.76 and were supported at $107.48 while WTI futures gained to US$ 102.27 and were supported at $101.99. EIA yesterday reported US stockpiles jumped 2.64 million barrels, in contrast to the 1 million barrel decrease that was estimated. Crude has been weaker for several consecutive trading days. Optimism over a deal to disarm Syria of its chemical weapons, additional output in Libya and Nigeria, record output levels in Texas, and other factors are leading to ample supply and capped prices.