USD remains near record lows ahead of FOMC meeting

- Summary of Asian trade between 17:00 ET and 23:00 ET: Stock markets in Japan and Australia saw early selling, but managed to recover towards the end of the morning session, with few investors willing to position aggressively ahead of the FOMC meeting. The USD continued to drift near record lows as speculators resisted the temptation to cover short positions ahead of the FOMC. Australian data added to the case for a November interest rate hike, while Japanese data raised new questions about the health of the labor market. Crude oil dipped back below $90 as fundamentals come back into the picture ahead of tomorrow's inventory data.

- Aussie data suggests another interest rate hike is on the cards: (AU SEPT BUILDING APPROVALS MOM: 6.8% V 1.0% expected, -1.8% prior; YOY: 4.2% V -0.1% prior) Recent inflation data convinced markets that the Reserve Bank of Australia will hike rates at their November meeting, and today's construction data confirms the consensus that the Aussie economy will comfortably absorb another rate hike.

- Aussie credit markets perform well despite U.S. subprime trouble: (AU SEPT PRIVATE SECTOR CREDIT MOM: 1.2% V 1.0% expected; YOY: 15.9% V 16.0% prior, revised from 16.2%) Analysts were surprised by the strong performance of the Aussie credit markets in the month after the U.S. subprime chaos erupted, adding weight to the argument that the Aussie economy has suffered little damage from recent market turmoil.

- Rising oil prices could push up prices in Japan: (JP OCT NOMURA/JMMA MANUFACTURING PMI: 49.5 V 49.9 expected, 49.8 prior) The components of the data showed that input prices climbed to a 1 year high, perhaps a sign that higher oil prices is starting to affect Japanese inflation.

- Japanese wage inflation fails to accelerate in September: (JP SEPT LABOR CASH EARNINGS YOY: -0.5% V 0.2% expected; OVERTIME EARNINGS YOY: 1.4% V 1.2% prior) Tuesday's data showed that the Japanese unemployment rate jumped unexpectedly for a second straight month in September, raising questions about the health of the Japanese labor market. The easing of labor market conditions seem to be the main reason behind the drop in Japanese wage inflation, and the Bank of Japan may have to reconsider their scenario of tight labor fueling wage inflation.

- Equities: At 22:50 ET the Nikkei is down -0.13%, the Kospi is marginally lower and Australia's ASX is little changed after recovering from early selling. Declines on the Nikkei are being led by commodities-related companies, while property shares gained on news a real estate partnership between Sapporo Holding and Morgan Stanley. Better than expected earnings from Australia's St. George's Bank lifted financials in Sydney, also inspiring bargain hunters to step in after heavy selling at the start of trade. Chinese equities are higher on gains in shares of banks and airlines, while the Hang Seng is lower by more than -1.0% on profit-taking.

- Commodities: Crude oil dipped below $90/bbl and lost -0.81%$ between 18:00 ET and 22:58 ET as speculators bagged profits ahead of tomorrow's FOMC rate decision and weekly U.S. inventories data. Spot gold is lower by -0.42%, trading below $785/oz.

(by Eben Esterhuizen and Gavin Pierce)