AUD Shines, USD Down As Metals Strengthen

The Australian Dollar outperformed all major peers through the European session as AUD/USD rallied to US$ 0.9400, EUR/AUD came off to A$ 1.4404, AUD/JPY bettered to ¥92.27, and AUD/CHF improved to CHF 0.8409. As expected, RBA voted to keep its benchmark lending rate unchanged at 2.50% and AUD gained as the announcement did not report A$ is overvalued, instead noting it is 10% below April’s levels. RBA also reiterated the “full effects of (the easing policy from late 2011) are still coming through, and will be for a while yet.” RBA also noted the weaker A$ will help rebalance economic growth. Aussie 10-year yields climbed 10bps after the announcement, the largest jump since 6 August. Today’s Australian data saw the September performance of manufacturing index climb to 51.7 from the prior reading of 46.4 while September Rismark house prices climbed 1.6% m/m and HIA August new home sales reversed and were up 3.4% m/m. Also, August retail sales expanded a better-than-expected +0.4% m/m. Chinese data saw September manufacturing PMI tick higher to 51.1, below expectations, and Chinese Premier Li yesterday reported the Chinese economy is “stabilising in a good trend.”

The Japanese yen was mixed against major rivals through the European session as USD/JPY fell to ¥98.00, EUR/JPY gained to ¥133.47, GBP/JPY rallied to ¥159.93, and CHF/JPY appreciated to ¥108.91. As expected, PM Abe increased the national sales tax to 8% from the current 5% level, effective in April. Traders now await details about a supplementary budget that is estimated to be about ¥5 trillion. The headline Q3 Tankan large manufacturers’ index improved to a better-than-expected +12 from the prior reading of +4 while the large manufacturers’ outlook ticked higher to +11 from +10. The Q3 non-manufacturing index improved to +14 from the prior reading of +12 and the non-manufacturing outlook ticked higher to +14. The improving Tankan data were overshadowed by weaker labour market numbers that saw the August jobless rate climb to 4.1% from the prior reading of 3.8% while August housing spending printed at -1.6% y/y, down from the prior reading of 0.1%, and August labour cash earnings came in at -0.6% y/y. BoJ’s Policy Board will issue a monetary policy decision later this week.

The Euro turned in a mixed showing against major currencies through the European session as EUR/USD gained to US$ 1.3551, EUR/GBP weakened to £0.8331, EUR/CHF came off to CHF 1.2222, and EUR/CAD jumped to C$ 1.3979. The ECB is expected to keep monetary policy unchanged with the benchmark refinancing rate remaining at 0.5% tomorrow and traders await any change regarding the central bank’s “forward guidance” on policy. Traders will focus on any ECB comments regarding the likelihood of additional LTROs to resupply liquidity to the banking system as well as comments regarding yesterday’s benign inflation print. Today’s Eurozone data saw German September unemployment tick higher to 6.9% from the prior reading of 6.8% while German September manufacturing PMI moved lower to 51.1 from the prior reading of 51.3. Eurozone manufacturing PMI remained unchanged at 51.1 and the August Eurozone unemployment rate is expected to print around 12.1% later in the European session.

The U.S. Dollar was weakest against major peers through the European session as GBP/USD appreciated to US$ 1.6245, USD/CHF weakened to CHF 0.9022, USD/CAD fell back to C$ 1.0306, and NZD/USD gained to US$ 0.8315. Traders were reluctant to add to new USD exposure after the U.S. government closed for the first time in seventeen years following a budget stalemate. The lack of a budget deal overnight in Congress and the pending “fiscal cliff 2.0” on 17 October when the US’s debt ceiling will be reached are keeping the USD on the defensive. Many traders believe the fiscal situation in the US may delay the Fed’s eventual taper of QE3. Today’s US data include September PMI, September ISM manufacturing, August construction spending, and September prices paid.

Gold and Silver strengthened through the European session as Gold climbed to US$ 1337.46 and was supported at $ 1324.78 while Silver appreciated to US$ 21.946 and was supported at US$ 21.610. The US government shutdown contributed to gains in the Metals complex as traders shunned the US Dollar. The looming possible breach of the US debt ceiling around 17 October could also be a short-term positive for the Metals complex, especially as the likelihood of a US debt default increases. PBoC yesterday reported that it may ease import and export restrictions on Gold.

Crude Oil was lower through the European session as Brent futures weakened to US$ 106.95 and were capped at $107.76 while WTI futures slumped to US$ 101.62 and were capped at $102.17. The shutdown of the US government added to the Oil’s woes as there will be less demand for crude energy products with most of the US government furloughed. Weekly EIA data due tomorrow are expected to show US stockpiles climbed for a second consecutive week. It is likely that OPEC crude production climbed to a ten-month high in September with Saudi Arabia pumping barrels at the fastest pace in 24 years. The American Petroleum Institute will release its inventory data today.