JPY Advances As AUD And NZD Fall Further

The euro was mostly stronger against major currencies through the european session as the EUR/USD gained to $1.3490, the EUR/GBP strengthened to £0.8434, the EUR/CHF came off to CHF 1.2286, and the EUR/AUD rallied to A$ 1.4441. The EUR extended yesterday’s gains in reaction to positive eurozone data that saw German GfK October consumer confidence tick higher to 7.1 from 7.0. Also, Italian consumer confidence came in above consensus. ECB President Draghi reported the ECB is, “ready to use any instrument, including another LTRO if needed, to maintain the short-term money markets at the level that is warranted by our assessment of inflation in the medium term.” Some traders believe the ECB will announce a two-year LTRO at the December Governing Council meeting. ECB officials Coeure, Liikanen, Nowotny, and Constancio today reconfirmed the ECB is committed to availing ample liquidity.

The Japanese yen outperformed against all major rivals through the european session as the USD/JPY fell to ¥98.38, the EUR/JPY slumped to ¥132.67, the GBP/JPY weakened to ¥157.36, and the AUD/JPY retreated to ¥91.90. Data released in Japan today saw August corporate services prices up +0.6% y/y while September small business confidence ticked higher to 49.8 and August machine tool orders bettered to -1.7% y/y. The JPY is benefitting from an unwinding of carry trades as traders sell higher-yielding currencies and cover JPY shorts. This has pushed JGB yields to their lowest level since 10 May. Cabinet Secretary Suga continues to ready the markets for a supplementary budget.

The New Zealand dollar fell sharply against all major rivals through the european session as the NZD/USD tumbled to $0.8220, the EUR/NZD appreciated to NZ$ 1.6401, the NZD/JPY came off to ¥80.91, and the GBP/NZD rallied to NZ$ 1.9453. Kiwi tumbled for a second consecutive day as traders unwound carry trades funded by lower-yielding currencies including JPY. Today’s tumble was caused by a worsening in the NZ August trade balance to –NZ$ 1.191 billion as exports receded by NZ$ 520 million.

The U.S. dollar was mixed against most rivals through the european session as the GBP/USD fell to $1.5978, the USD/CHF came off to CHF 0.9108, the AUD/USD sank to $0.9337, and the USD/CAD bettered to C$ 1.0318. Treasury Secretary Lew reiterated the U.S. government will hit its debt ceiling in the middle of October and lose its borrowing ability. Obama is in a showdown with the U.S. Congress over a new budget for the fiscal year that begins on 1 October. Lew noted the markets are calmer than they should be. Yesterday’s data saw July house prices up 1.0% m/m, while September consumer confidence retreated to 79.7, and the September Richmond Fed manufacturing index slumped to 0. Fed officials George and Pianalto spoke yesterday, and Fed official Kocherlakota is due tomorrow followed by others on Friday.

Gold and Silver were marginally weaker through the european session as Gold fell to $1319.43 and was capped at $1329.76, while Silver depreciated to US$ 21.555 and was capped at US$ 21.879. The Metals complex is taking some cues from the budget showdown in the U.S. where the U.S. Senate will today conduct a test vote on legislation passed by the House to cover federal spending through 15 December. IMF data show that Russia and Kazakhstan that increased their Gold reserves in August.

Crude Oil was better through the european session as Brent futures gained to $108.90 and were supported at $108.26, while WTI futures gained to US$ 103.62 and were supported at $102.94. Brent’s gains outperformed WTI’s gains ahead of today’s weekly U.S. government inventories data that are expected to show a 1 million barrel decrease in inventories to an 18-month low. API reported crude supplies have declined 54,000 barrels. Traders are focusing on a possible thaw in relations between the U.S. and Iran following Obama’s courtship of the regime at the United Nations General Assembly. Reported progress regarding negotiations to disarm Syria of its chemical weapons is also keeping a lid on prices.