USD Advances, AUD And NZD Weaker, Metals And Oil Stronger

The Australian Dollar was broadly weaker against major peers through the European session as AUD/USD weakened to US$ 0.9388, EUR/AUD appreciated to A$ 1.4368, AUD/JPY fell to ¥91.78, and AUD/CHF depreciated to CHF 0.8567. Data released in Australia today saw October inflation expectations climb to 2.0% from the prior reading of 1.5%. Also, September employment reversed and was up +9,100 from a revised -10,200 in August as the unemployment rate moved lower to 5.6% from the prior 5.8% level. Both full-time and part-time workers increased and the labour participation rate ticked lower to 64.9%. RBA is expected to ease monetary policy in Q1. Chinese data due today include September new CNY loans, September foreign reserves, and the September money supply.

The Japanese yen depreciated against most major rivals through the European session as USD/JPY gained to ¥97.81, EUR/JPY appreciated to ¥131.98, GBP/JPY moved higher to ¥155.79, and CHF/JPY rallied to ¥107.23. Data released in Japan today saw September headline bank lending climb +2.0% y/y. Also, August machine orders climbed +5.4% m/m and +10.3% y/y while the August tertiary index was up +0.7% m/m. Weekly portfolio flows data through 4 October saw Japanese turn net sellers of foreign bonds and bet buyers of foreign equities while foreign investors became net buyers of foreign bonds and net sellers of Japanese equities. Also, September consumer confidence improved to +45.4 from the prior reading of +43. BoJ Governor Kuroda speaks twice today and his remarks will be carefully evaluated for any indication about the expected timing of an increase in monetary easing in Japan. Yesterday, BoJ Deputy Governor Nakaso indicated there is a strong possibility the BoJ will reach its 2% inflation target in FY 2014-2015, adding Japanese long-term yields remain very stable. Nakaso also indicated there is no need for additional easing at this time.

The British pound was mostly stronger against major currencies through the European session as GBP/USD fell to US$ 1.5913, EUR/GBP came off to £0.8464, GBP/CHF climbed to US$ 1.4546, and GBP/AUD gained to A$ 1.6954. Bank of England’s Monetary Policy Committee will release its monetary policy decision today and is not expected to alter policy at this time. The MPC’s forward guidance suggests the MPC will likely not raise interest rates until the unemployment rate declines and stabilises around 7.0%. Data released in the UK yesterday saw August industrial production at -1.1% m/m and -1.5% y/y and August manufacturing production came in at -1.2% m/m and -0.2% y/y. Also, the August trade balance deficit moderated to -£3.320 bullion and the NIESR September GDP estimate ticked lower to +0.8% from the prior reading of +0.9%.

The U.S. Dollar outperformed against its peers through the European session as EUR/USD weakened to US$ 1.3486, USD/CHF gained to CHF 0.9130, USD/CAD bettered to C$ 1.0418, and NZD/USD fell to US$ 0.8232. USD advanced despite the ongoing US government shutdown as both Senate Democrats and House Republicans were said to be moving closer to a short-term deal to avoid default on the nation’s debt. The US$ 16.699 trillion debt ceiling is expected to be reached on 17 October. Treasury Secretary Lew testifies before the Senate Finance Committee today and both Senate Democrats and House Republicans will convene meetings with Obama later today. One-year credit default swaps on US government debt traded about +77.6 bps yesterday. Obama yesterday formally announced the nomination of Fed Vice Chairman Yellen to succeed Bernanke. Minutes from the Fed’s September FOMC meeting yesterday revealed most policymakers expected the Fed to begin tapering QE3 in 2013 despite uncertainty on the fiscal horizon. G20 central bankers and finance ministers are convening in the US today at a major policy conference.

Gold and Silver were stronger through the European session as Gold climbed to US$ 1307.02 and was supported at $ 1300.36 while Silver appreciated to US$ 21.955 and was supported at US$ 21.794. Gold is expected to notch its first losing year in thirteen years in 2013 and some major US banks are speculating Gold will continue to move lower next year. Investors have sold an estimated 711.8 metric tons from Gold bullion-backed exchange-traded products in 2013, knocking approximately US$ 61 billion in value from the company with holdings now around 1,920 tons, the least since May 2010. A deal to reopen the US government and avoid a debt default will likely cap the upside in the Metals complex.

Crude Oil appreciated through the European session as Brent futures gained to US$ 108.93 and were supported at $108.14 while WTI futures appreciated to US$ 101.91 and were supported at $101.25. The reported abduction of Libyan Prime Minister Ali Zaidan in Tripoli added to the move higher in the Oil complex as that country tries to restore resolve labour disputes and restore production and exports. Daily Libyan output recently improved to 700,000 barrels per day. EIA data released in the US yesterday saw crude stockpiles climb by 6.8 million barrels last week, the most since 14 September. US refineries reduced operating rates to an average 86% capacity, the lowest level in more than five months. A resolution to the US government closure and debt ceiling crisis will likely have a positive impact on the Oil complex.