NEWS / Monetary Policy

Forex and Commodity Market Commentary and Analysis (1 November 2006)

?‚¬

The euro lifted higher vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2795 level and was supported around the $1.2740 level. The common currency moved to intraday highs after the release of weaker-than-expected U.S. data that saw the October ISM manufacturing index print at 51.2, down from September??™s 52.9 reading, while the prices paid sub-index tanked to 47.0 from 61.0. These prices paid data caused the dollar to sell-off on the notion there will be less inflation in the less economy and less pressure on the Federal Open Market Committee to tighten rates further. Additionally, pending home sales were off 1.1% m/m and 13.6% y/y in September, the latest evidence that the U.S. housing market is weakening on account of the decelerating U.S. economy and the accumulation of monetary contraction in the Fed??™s pipeline. These data follow yesterday??™s lower consumer confidence figures that saw a pullback to 105.4 in October from 105.9 in September, below expectations. Yesterday also saw the NAPM??™s October barometer of business activity spin lower to its lowest reading since August 2005. Traders await the release of the all-important U.S. October non-farm payrolls report on Friday. In eurozone news, there was little activity on account of the All Saints Day holiday. Most traders expect the European Central Bank to keep monetary policy unchanged tomorrow and await remarks from ECB President Trichet who is likely to remain hawkish and signal a +25bps rate hike in December. Euro bids are cited around the US$ 1.2650/ 1.2560 levels.

??/ CNY

The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??116.55 level and was capped around the ??117.10 level. Technically, today??™s intraday low was right around the 23.6% retracement of the move from ??101.65 to ??121.40. Traders are still digesting yesterday??™s comments from Bank of Japan Governor Fukui who noted the central bank??™s next rate hike will ???come not too soon, and not too late.??? Traders??™ expectations are split between expecting a rate hike at the end of this year and later in Q1 2007. The Nikkei 225 stock index lost 0.15% to close at ??16,375.26. Dollar bids are cited around the ??115.70 level. The euro came off marginally vis-? -vis the yen as the single currency tested bids around the ??149.05 level and was capped around the ??149.35 level. The British pound and Swiss franc moved higher vis-? -vis the yen as the crosses tested offers around the ??223.50 and ??94.10 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8724 in the over-the-counter market, down from CNY 7.8790. Data released in China today saw the October PMI manufacturing survey print at 52.1, down from September??™s 52.4 print and the weakest print in seven months.

?‚¤

The British pound appreciated vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9135 level and was supported around the $ 1.9055 level. Bank of England Governor King tried to reduce speculation that another rate hike from the central bank next month is a ???done deal.??? Most traders, however, believe the Monetary Policy Committee will lift borrowing costs by +25bps on 9 November to 5.00%. Data released in the U.K. today saw October manufacturing PMI fall to 53.7 from a revised 54.5 in September. Cable bids are cited around the US$ 1.8995 level. The euro gained marginal ground vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6690 level and was supported around the ?‚¤0.6675 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2405 level and was capped around the CHF 1.2460 level. Data released in Switzerland today saw the October PMI manufacturing survey print at 62.3, down from 64.4 in August, below expectations. U.S. dollar offers are cited around the CHF 1.2520 level. The euro and British pound came off vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5865 and CHF 2.3705 levels, respectively.

AUD

The Australian dollar gained ground vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7755 level and was supported around the $0.7730 level. Data released in Australia overnight saw September building approvals rise 6.1% m/m and 9.0% y/y. Also, the October AIG performance of manufacturing index was off 1.6 index points to 51.9. Most traders expect Reserve Bank of Australia to lift borrowing costs this month. Australian dollar bids are cited around the US$ 0.7700 figure.

CAD

The Canadian dollar came off sharply vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1350 level and was supported around the C$ 1.1210 level. Technically, today??™s intraday high was right around the 23.6% retracement of the move from $1.2730 to $1.0925. The impetus for the weaker loonie today was news that Canadian finance minister Flaherty announced plans to tax income trusts. U.S. dollar offers are cited around the $1.1355/ 1.1655 levels.

NZD

The New Zealand dollar moved higher vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6750 level and was supported around the US$ 0.6685 level. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold appreciated vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 616.85 level and was supported around the $ 605.70 level. The weaker U.S. dollar and slower U.S. economic data added to gold??™s gains. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the US$ 12.54 level and was supported around the $12.27 level.


Crude Oil

Crude oil was off marginally vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 58.19 level and was capped around the $58.92 level. OPEC??™s recently announced production cuts went into effect today but traders doubt members??™ resolve to lessen output and some traders see Nigerian exports increasing over the next couple of months. The pair may be supported by news that China will increase its oil reserves. EIA crude oil data released today saw an increase of +2.0 million barrels of inventory in the latest week.