JPY Rises, AUD And NZD Falter While Metals And Oil Remain Muted

The Australian Dollar came off against most major peers through the European session as AUD/USD weakened to US$ 0.9351, EUR/AUD appreciated to A$ 1.4457, AUD/JPY weakened to ¥91.33, and AUD/CHF slumped to CHF 0.8469. Risk aversion returned to the market and drove higher-yielding currencies like AUD and NZD lower. Aussie data saw August building approvals print at -4.7% m/m and +7.7% y/y while the August trade balance moderated to –A$ 815 million. The September performance of service index will be released tomorrow. Yesterday, RBA voted to keep its benchmark lending rate unchanged at +2.50% and RBA moved A$ higher by not mentioning it is overvalued in its policy statement.

The Japanese yen appreciated against major rivals through the European session as USD/JPY fell to ¥97.55, EUR/JPY dropped to ¥131.90, GBP/JPY moved lower to ¥157.84, and CHF/JPY depreciated to ¥107.66. The Nikkei 225 stock index was off about 2.17% today as the markets were underwhelmed by the ¥5 trillion supplementary budget announced by PM Abe who also yesterday announced an increase in the sales tax to 8% from the current 5% level, effective April 2014. BoJ released a quarterly survey in which inflation expectations were scaled back with the public now eyeing an average annual inflation rate of +2.0%, down from +2.5% in the July survey, with consumer prices expected to escalate 3% over the next year. BoJ’s Policy Board convenes on Friday and is not expected to alter monetary policy at that time. Today’s data saw the September monetary base climb 46.1% y/y to ¥185.6 trillion.

The Euro turned in a mixed showing against major currencies through the European session as EUR/USD fell to US$ 1.3506, EUR/GBP strengthened to £0.8359, EUR/CHF moved higher to CHF 1.2263, and EUR/CAD jumped to C$ 1.3994. ECB’s policy decision is expected today and will likely result in no change in monetary policy with the main refinancing rate steady at +0.50%. Post-announcement remarks from ECB’s Draghi are expected to be relatively dovish and benign, especially with the Eurozone’s latest CPI print at +1.0% - far below its ceiling target of +2.0%. The markets await clearer signals from Draghi and the ECB regarding the likelihood of additional LTROs to provide more liquidity to the European banking sector. Greece’s Samaras called on Europe to provide his country with additional assistance for Greek debt in November. Political drama in Italy continues to unfold where the Letta government looks like it will not receive enough backing from Berlusconi’s legislative colleagues to remain viable.

The British pound lacked clear direction against rival currencies through the European session as GBP/USD fell to US$ 1.6161, GBP/CHF weakened to CHF 1.4652, GBP/AUD rallied to A$ 1.7305, and GBP/NZD advanced to NZ$ 1.9735. Yesterday’s UK data saw September manufacturing PMI retreat to 56.7 from the prior reading of 57.1 and today’s September construction PMI printed at 58.9, below expectations and down from the prior print of 59.1. Sterling has remained bid over the last several trading sessions and traders expect it will outperform given the recent improvement in the UK economy. The markets remain at odds with BoE over the timing of the next rate hike by the central bank.

Gold and Silver gained marginal ground through the European session as Gold climbed to US$ 1293.18 and was supported at $ 1278.00 while Silver appreciated to US$ 21.198 and was supported at US$ 20.963. The Metals complex was off significantly yesterday with Gold shedding $40 and Silver off US$ 0.49. Some traders are puzzled by Gold’s sell-off given its usual attraction as a safe haven currency and its inability to appreciate as a result of the US fiscal crisis.

Crude Oil was muted through the European session as Brent futures advanced to US$ 107.10 and were supported at $106.86 while WTI futures slumped to US$ 101.24 and were capped at $101.45. The closure of the US government has resulted in a downward bias for Oil as demand will be less. API yesterday reported that inventories climbed 4.55 million barrels and today’s weekly EIA data may indicate supplies grew last week with about a 2.5 million barrel increase being estimated. Refinery utilisations are also expected to decline below 90%.