NEWS / Foreign Exchange

USD plumbs lows as durable goods orders fall

New Zealand dollar

NZD unfazed by RBNZ announcement. The NZD rallied by half a cent early in yesterday??™s session thanks largely to a rumour hitting the market that the US Fed Reserve may look to cut the discount rate (rate at which they lend to Bank??™s as a last resort) before their scheduled announcement next week. The Dow rebounded on the back of this rumour and, as has been the case over recent times, the NZD followed suit. That was where the excitement ended yesterday, with the NZD trading in a tight range for the remainder of the session following the Reserve Bank??™s statement which could best be described as uninspiring. Overnight the NZD ground its way to an intra-day high of 0.7625 before dipping slightly towards the end of the session to close around 0.7590.

Australian dollar

AUD keeps trucking. The AUD bounced through the 90c mark on early trading yesterday on the back of increased speculation by the market that the RBA will hike interest rates on November 7 and the Fed Reserve will be forced to cut rates again on October 31. Overnight the AUD maintained its position above 90c, touching on a fresh 23 year high of 0.9083 before retreating to around 0.9060 where we open this morning.

Major currencies

USD plumbs lows as durable goods orders fall. The USD plumbed postinception lows against the euro in overnight trade as a 1.7% drop in durable goods orders in September bolstered expectations that the Federal Reserve will cut US rates. Despite a better-than-expected headline new home sales report, the USD failed to rally as historical revisions negated any positive impact. The euro strengthened from an intraday low of 1.4248 to peak at 1.4345, while JPY slipped to an overnight low of 113.84. Sterling strengthened to a three month high of 2.0555 despite suggestions in the Financial Times that the Bank of England will warn that the UK finance sector remains ???vulnerable???. The Canadian dollar rallied to a 33 year high of 0.9613 as an unexpected draw on oil stocks saw US crude oil futures trade above $90/b.

Economic data and events

US new home sales rise 4.8% in Sep. New home sales posted an unexpected rise in September, but substantial downward revisions to June and July growth rates worth a cumulative 8 ppts mean that even with the September rise, the level of sales was still only 770k annualised, exactly in line with the market consensus. A very clear downtrend in sales remains in place, though that downtrend does not seem to have steepened during the credit crunch months.
US durable goods orders down 1.7% in Sep. The headline decline in durable orders paints a weak picture which is not entirely justified by the detail in the report. There was a steep 39% plunge in defence orders (much of that also counted as transport) but excluding defence, orders managed a partial rebound from Aug??™s steep decline. Even better, core capital goods orders rose 0.4% and shipments of same were up 1.0% for a 5.0% quarterly annualised pace. That suggests that our Q3 business investment forecast could be a little low. Add to that a late quarter jump in durable inventories (up 0.4%), and you can make a case for risks around our 2.7% annualised Q3 GDP forecast being clearly to the upside (due Oct 31).
In other US news, initial jobless claims only fell modestly (??“8k to 331k) last week, suggesting that a mild up-trend may be emerging. Also, September housing permits were revised up from a 7.3% plunge to a 4.3% fall.
Japanese September corporate services rose 0.7% in Sep, good for a 1.4% annual pace. Transport, particularly ocean freight, remains the key source of wholesale services inflation.
German business confidence down 0.3 pts to 103.9 in Oct. The Ifo business climate index eased for the sixth consecutive month in October, but the size of the decline was only modest, consistent with other recent national and Europe-wide surveys which have hinted at some early signs of stabilisation in business sentiment this month.
UK mortgage approvals by banks were soft in September (no surprise!). Full industry data will be published 29/10 by the BoE. Not unrelated, in its 6 monthly financial stability review the BoE said the global financial system remains at risk of renewed instability because of ongoing uncertainties about credit market losses.