JPY Weakest With EUR, GBP Ahead

The Australian Dollar was mostly stronger through the European session as AUD/USD appreciated to US$ 0.9334, EUR/AUD improved to A$ 1.4356, AUD/JPY rallied to ¥92.65, and GBP/AUD bettered to A$ 1.7116. RBA’s September meeting minutes were released and indicated a “further decline in the exchange rate would be helpful,” adding policymakers “should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.” The swaps market is pricing in about a 40% chance the RBA will reduce rates by April. RBA also reported labour market conditions are “subdued” and sees “restrained” non-mining investment. The Westpac July leading index will be released tomorrow. Chinese data released today saw August foreign direct investment come in at +0.6% y/y, far below the prior +24.1% y/y print, and the China August leading economic index improved to 269.3.

The US Dollar was mostly weaker through the European session as EUR/USD gained to US$ 1.3356, USD/JPY rallied to ¥99.35, GBP/USD improved to US$ 1.5920, and USD/CHF weakened to CHF 0.9254. The markets are closely monitoring the FOMC’s two-day policy deliberations with the markets prepared for a US$ 10 billion QE taper tomorrow. A US$ 15 billion taper is not out of the question and a reduction in asset purchases is primarily expected in the Treasuries market. WSJ cited “administration sources” who reported Fed Vice Chair Yellen is now the favourite to replace Bernanke following Summers’ decision to withdraw his candidacy on Sunday. Today’s CPI numbers are expected to show a headline print around +1.6% y/y and a core CPI around +1.8% y/y. September NAHB and July TICS data are also due today.

The Japanese yen came off against its major peers through the European session as EUR/JPY appreciated to ¥132.47, CHF/JPY gained to ¥106.74, CAD/JPY bettered to ¥96.18, and NZD/JPY rallied to ¥81.29. Japanese financial markets reopened after yesterday’s holiday and only minor data were released that saw Tokyo condominium sales up 53.3% y/y, compared with July’s +31.6% y/y print. Finance minister Aso is prepping the market for a supplementary budget and wants to finance it without additional JGB issuance. This may be seen as an indication that the sales tax increase to 8% is likely to be approved by PM Abe on 1 October. August trade balance numbers are expected on Thursday and BoJ Governor Kuroda is due to speak.

The British pound was strongest rival currencies through the European session as EUR/GBP fell to £0.8308, GBP/CHF strengthened to CHF 1.4746, and GBP/CAD gained to C$ 1.6442. August CPI data out today saw a +0.4% m/m and +2.7% y/y climb, in contrast to the +0.0% m/m and +2.8% y/y prior print, while the core rate came in at +2.0% y/y, the same as the prior month. These data will perpetuate ongoing preoccupation with the BoE’s interest rate cycle with the markets anticipating a rate hike by Q1 2015 whereas the MPC does not anticipate a hike before Q3 2016. BoE Governor Carney last week indicated the MPC and the markets simply have a difference of opinion on UK rate expectations. Minutes from the MPC’s September meeting will be released tomorrow followed by August retail sales and September CBI data on Thursday and then August public finances data on Friday.

Gold and Silver strengthened through the European session as Gold gained to US$ 1322.22 and was supported at $1308.06 while Silver appreciated to US$ 22.107 and was supported at US$ 21.738. The Metals complex partially rebounded from yesterday’s depreciation following a gap higher in the wake of Summers’ decision to withdraw his name from consideration to replace Bernanke. Metals traders are closely awaiting the FOMC’s decision on a possible taper tomorrow. Riskier assets such as Gold and Silver may be on the defensive as the Fed withdraws liquidity from the system. It was reported that holdings in gold-backed ETPs declined 1.1 metric tons yesterday to 1,939.2 tons, the lowest level since May 2010.

Crude Oil was mixed through the European session as Brent futures climbed to US$ 109.72 and was supported at $109.20 while WTI futures were marginally better to US$ 105.73 and were supported at $105.23. The Energy complex continues to monitor developments involving Syria. Yesterday, US’s Kerry joined UK and French officials in pressing for a UN resolution to eliminate Syria’s chemical weapons program, possibly resulting in the ouster of Syria’s Assad. UN’s Ban Ki-moon yesterday information the Security Council that there is “clear and convincing evidence” that chemical weapons were used near Damascus on 21 August. Crude took some cues from news that Libya has restored about 25% of its crude output as a result of ongoing talks between the government and striking workers. Also, news that hurricane Ingrid was downgraded to a tropical depression saw some oil export facilities reopened in Mexico. US crude inventories likely declined last week to their lowest level in about one year.