Risk-Off: AUD, NZD Falter As USD, GBP Climb

through the European session as EUR/USD fell to US$1.3263, USD/JPY improved to ¥99.41, GBP/USD slumped to US$1.5775, and USD/CHF gained to CHF 0.9340. USD’s gains were minimal, however, as traders await US August retail sales and University of Michigan consumer sentiment data during the North American session. The FOMC is expected to announce a taper of its QE policy next week, likely including about a US$10 billion monthly reduction in asset purchases. Traders largely discounted yesterday’s surprising decline in weekly jobless claims to their lowest level in seven years. The Fed yesterday reported its balance sheet now stands at US$3.66 trillion and Chairman Bernanke is said to want to reduce it ahead of his departure from the Fed in January.

The Japanese yen reversed recent gains against most currencies through the European session as EUR/JPY improved to ¥132.63, GBP/JPY reached ¥157.76, CHF/JPY appreciated to ¥107.05, and AUD/JPY fell to ¥92.03. Japanese data saw July industrial production climb 3.4% m/m and 1.8% y/y while capacity utilisation improved 3.7% m/m. The data were not enough, however, to encourage JPY to extend recent gains. LDP’s Noda dismissed the idea of a reduction in the corporate tax rate anytime soon with finance minister Aso saying any such eventual reduction will have a limited impact. Aso also said the government’s and BoJ’s policies are not targeting a weaker yen, also adding a possible supplementary budget may not be financed through new JGB issuance. Economy minister Amari said the possible sales tax increase depends on whether or not PM Abe believes the economy can move ahead with higher taxes. Abe is expected to decide on October 1 whether to hike the sales tax to 8% from its current 5% level, starting in April.

The Euro was mixed against other currencies through the European session as EUR/GBP depreciated to £0.8402, EUR/CHF improved to CHF 1.2389, EUR/CAD rallied to C$1.3738, and EUR/AUD appreciated to A$1.4384. The Euro’s intraweek high coincides with a key technical resistance level relating to the range of its July-2012 low to its February 2013 high. Euro-zone finance ministers are meeting in Lithuania to discuss Greece and Cyprus today and remarks are expected at a press conference. ECB rate-setter Asmussen was on the tape saying the ECB is unlikely to raise rates anytime soon while EU’s Rehn lauded “signs of an economic turnaround” in Spain. Euro zone Q2 employment numbers are expected later today. The Italian Senate has postponed its vote on an expulsion of Berlusconi until September 18. Berlusconi’s departure could endanger the young coalition government and drive yields higher.

The New Zealand Dollar ceded some of yesterday’s gains through the European session as NZD/USD fell to US$0.8094, EUR/NZD bettered to NZ$ 1.6389, and GBP/NZD strengthened to NZ$1.9491. NZ released today saw Business NZ’s August performance of manufacturing index decelerate to 57.5 while ANZ September consumer confidence fell to -3.4% m/m from the prior +2.7% m/m reading. Also, August food prices printed at -0.5% m/m and August non-resident bond holdings climbed to 68.3% from the prior 67.9%, suggesting the carry trade may have become more popular. RBNZ yesterday voted to keep its benchmark lending rate unchanged at 2.50% and Governor Wheeler indicated hikes “will likely be required next year.”

Gold and Silver extended recent losses through the European session as Gold weakened to US$1308.00 and was capped at $1330.82 while Silver depreciated to US$21.674 and was capped at US$22.152. Gold’s range yesterday was more than US$45 and the metal is now trading at its lowest level since August 9. Some indications report that Gold traders have turned the most bearish since June and Gold is off some 22% this year, currently on pace for its first annual decline in thirteen years. The prospect of the Fed tapering next week is removing some liquidity premium from the market. Furthermore, US and Russian officials are huddling to discuss a non-military solution to the removal of Syria’s chemicals weapons. Silver’s range yesterday was a significant US$1.40 and is now trading at its lowest level since August 14.

Crude Oil gave back some of yesterday’s appreciation through the European session as Brent futures fell to US$111.00 and were capped at $111.62 while WTI futures weakened to US$107.35 and were capped at $108.00. Brent futures gave back some of yesterday’s US$1.50+ gain. Libya has declared force majeure on crude exports from three terminals on account of continued strikes. Syria’s Assad has indicated it will now abide by an international treaty banning chemical weapons and called on the US to end its threat of a military strike and curtail its arming of Syrian rebels. Tanker tracker Oil Movements reported OPEC will likely increase crude shipments by 1.5% this month to satisfy escalating demand from Asian refiners. IEA reported OPEC produced 0.8% less crude last month due to the Libyan situation even though Saudi Arabia reportedly pumped the most in 32 years.