NZD Leads, JPY Extends Gains, AUD Folds

against most currencies through the European session as USD/JPY fell to ¥99.18, EUR/JPY sank to ¥132.05, GBP/JPY reached ¥156.93, and CHF/JPY depreciated to ¥106.65. Risk aversion dominated and kept USD/JPY below ¥100. Japanese data saw July machine orders improve to a lighter-than-expected 0.0% m/m and 6.5% y/y. Chief Cabinet Secretary Suga dismissed chatter that PM Abe has decided to support a sales tax increase, a likely policy move expected by 1 October that could ultimately result in a supplementary budget for Japan. July industrial production and capacity utilisation data are due tomorrow.

The Australian Dollar was weaker against all major rivals through the European session as AUD/USD softened to US$ 0.9238, EUR/AUD gained to A$ 1.4398, GBP/AUD improved to A$ 1.7117, and AUD/CHF depreciated to CHF 0.8593. The Aussie came off after the release of weak August employment numbers that saw an employment change of -10,800, up from the prior -11,400 reading but defying expectations of net job gains. The August unemployment rate ticked higher to a multi-year high of 5.8% and the labour participation rate fell to 65.0%, its lowest reading since January 2007. RBA officials have indicated the labour market will remain challenged over the next couple of years so the central bank’s shift to a neutral monetary policy stance will likely not change as a result of these weaker labour numbers. A$ also moved lower on a moderation consumer inflation expectations in September to 1.5% from the prior reading of 2.3%, its lowest print in twenty years. There are no significant data scheduled for release in Australia tomorrow. Chinese Premier Li yesterday reported an improvement in global growth isn’t firm and said reform – rather than stimulus – is needed in China.

The Euro was mixed against other currencies through the European session as EUR/USD fell to US$ 1.3301, EUR/GBP depreciated to £0.8407, EUR/CHF weakened to CHF 1.2372, and EUR/CAD spun lower to C$ 1.3718. The ECB released its September monthly report today and reiterated its forward guidance, pledging to keep rates low for an extended period. The ECB also noted various confidence indicators suggest a gradual recovery will continue. ECB’s Praet further the dialogue regarding failed bank resolution powers, arguing the ECB cannot be responsible for providing equity to troubled financial institutions. ECB’s Coene reported Greece may require one additional fiscal injection and EU’s Dijsselbloem reported Greece’s perilous fiscal situation will continue into 2015. The Portuguese government noted it will seek to renegotiate better fiscal targets with the troika pursuant to that country’s bailout. Traders are paying close attention to developments in Italy where the coalition government could fall if Berlusconi is removed from Parliament on account of tax fraud. German August wholesale prices came in at -0.6% m/m and -1.7% y/y and Eurozone July industrial production numbers are due today followed by Eurozone Q2 employment numbers tomorrow. French August CPI printed at +0.5% m/m and +0.9% y/y.

The New Zealand Dollar was strongest across the board through the European session as NZD/USD climbed to US$ 0.8149, EUR/NZD came off to NZ$ 1.6334, GBP/NZD weakened to NZ$ 1.9409, and AUD/NZD fell sharply to NZ$ 1.1361. RBNZ’s policy decision to keep its benchmark lending rate unchanged at 2.50% moved kiwi sharply higher as the central bank indicated rates will likely remain on hold in 2013 while noting hikes “will likely be required next year.” The markets are now pricing in about 95bps of tightening over the next twelve months by RBNZ. Governor Wheeler called for an appreciation in the US Dollar and a depreciation in the “overvalued” NZ Dollar while noting the NZ economy is expanding at about 3% per annum. RBNZ’s new lending restrictions come into effect from 1 October in an attempt to tame runaway house prices in areas like Auckland and Canterbury.

Gold and Silver encountered selling pressure through the European session as Gold weakened to US$ 1343.98 and was capped at $1365.78 while Silver depreciated to US$ 22.726 and was capped at US$ 23.193. Gold fell to its lowest since 15 August as the likelihood of US military action against Syria continued to fade further. Putin made his anti-military action call to the US public in an op-ed piece in the US media and the media reported the Obama administration is unable to prove that Syria’s Assad ordered chemical weapons attacks. There is a growing consensus that the US House would fail to provide Obama with authority to launch a military campaign if a vote were taken. A lack of military action could become complex because there is a growing concern that Assad’s regime – rather than Assad himself – has control over Syria’s chemical weapons, and this could render a UN-led disarmament very difficult. Silver moved to its lowest level since 22 September, broadly tracking Gold lower, and has come off about 9.7% from recent highs.

Crude Oil was mixed through the European session as Brent futures fell to US$ 110.01 and were capped at $110.30 while WTI futures weakened to US$ 106.52 and were capped at $107.09. Saudi Oil Minister Al-Naimi pledged to provide ample supply to meet demand during this period of elevated geopolitical uncertainty. US and Russian officials are meeting today to discuss a plan for Syria to surrender its chemical weapons to international authorities. Crude oil prices escalated yesterday after weekly US EIA data saw inventories decline to their lowest level since February 2012, the tenth weekly reduction in supplies. OPEC’s El-Badri reported global oil markets have sufficient supply and said there is no need to increase output despite Libyan supplies being pressured by strikes in that country.