NZD Sinks Trailed By JPY

The British pound was strongest against rival currencies through the European session as the EUR/GBP fell to £0.8391, the GBP/JPY gained to ¥1.5795, the GBP/CHF strengthened to CHF 1.4744, and the GBP/CHF bettered to CHF 1.4744. Sterling recovered from yesterday’s sell-off ahead of the release of today’s BoE MPC September meeting minutes. Policymakers voted to keep BoE’s asset purchase program unchanged at £375 billion at that meeting. The markets anticipate the minutes will reveal a healthy dose of economic optimism from policymakers, given the recent improvement in UK economic data. Yesterday’s UK numbers included August CPI data and they revealed that price pressures remain elevated in the UK. Last week, BoE Governor Carney and MPC members Miles, Fisher, and McCafferty noted the recent economic improvements during their parliamentary testimony. August retail sales and September CBI data are due tomorrow.

The Australian Dollar was mostly stronger through the European session as the AUD/USD appreciated to $ 0.9363, the EUR/AUD came off to A$ 1.4265, the AUD/JPY rallied to ¥92.92, and the GBP/AUD bettered to A$ 1.7030. Aussie data released overnight saw the July Conference Board leading index improve to +0.3% from the prior -1.1% print while the Westpac July leading index improved to +0.6% from the prior +0.0% level. RBA foreign exchange data will be released tomorrow and there are no major data expected on Friday. S&P reduced Western Australia’s rating from AAA to AA+ today, citing “fiscal pressures.” Fitch called on China to maintain growth and stability but added no deleveraging is taking place. The Chinese government reported that property prices expanded further in nearly every major city in August.

The US Dollar was little changed through the European session as the USD/JPY gained to ¥99.32, the EUR/USD fell to $ 1.3346, the USD/CHF strengthened to CHF 0.9267, and the USD/CAD rallied to C$ 1.0302. The FOMC will issue its monetary policy decision today with most traders expecting at least a $ 10 billion QE taper, mostly likely in the form of a reduction in monthly purchases of Treasuries and possibly MBS by the Fed. Policymakers have long reiterated that any such taper would still mean the Fed is providing significant liquidity in the system. Some primary Treasury Dealers are anticipating more than a $ 10 billion taper with $ 15 billion being whispered on some desks. In addition to the Fed’s policy decision, it will provide its Summary of Economic Projections today and the markets will evaluate this forward guidance from the Fed. Bernanke’s post-decision press conference will be closely watched. Yesterday’s US data saw August headline CPI fall sharply to +1.5% from the prior +2.0% reading while the core rate ticked higher to +1.8%. Also, July net long-term TIC flows reversed higher to $ 31.1 billion while total net TIC flows expanded to $ 56.7 bllion. Also, the NAHB September housing market index remained unchanged at +58. Today’s US data include August building permits and housing starts.

The New Zealand Dollar was lower against all major rivals through the European session as the NZD/USD fell to $ 0.8212, the EUR/NZD recovered to NZ$ 1.6254, the NZD/JPY sank to ¥81.43, and the GBP/NZD rallied to NZ$ 1.9287. Today’s data saw the Q2 current account deficit widen to –NZ$ 1.252 billion from the prior –NZ$ 416 million print.Q2 GDP data are due tomorrow and are expected to print around +0.2% q/q and + 2.3% y/y. ANZ job advertisements and August credit card spending numbers are due tomorrow. NZ yields continue to creep higher with the 10-year government now trading around 4.806%, a two-year high that could attract additional carry trades. RBNZ is expected to remain relatively hawkish with regard to monetary policy and a rate hike is expected within the next twelve months.

Gold and Silver depreciated through the European session as Gold weakened to $ 1291.71 and was capped at $1310.51 while Silver weakened to $ 21.347 and was capped at $ 21.777. Gold’s move below the psychologically-important $ 1300 figure was expected and was the first time it has traded below this area since 8 August. Gold reached a recent high around $1433 on 28 August and has since moved lower on speculation that the Fed’s QE taper will reduce the amount of liquidity for risky assets like Gold. Silver reached its lowest level since 14 August as the looming FOMC policy decision is reducing demand for many assets in the Metals complex.

Crude Oil was better through the European session as Brent futures climbed to $ 108.20 and was supported at $107.40 while WTI futures gained to $ 105.54 and were supported at $104.47. Libya is trying to increase its daily output to 700,000 barrels from about 200,000 barrels. US inventories data from yesterday revealed a decline by 1.2 million barrels to 358 million, its lowest level since August 2012. Traders continue to monitor developments in Syria with any possible rekindling of military or chemical weapons tensions there likely to see Crude prices driven higher on supply disruption concerns.