USD consolidates ahead of payrolls data

New Zealand dollar

Carry trade unwinding seen after downgrades of top two banks in US. The NZD initially jumped about 80 points to a high of 0.7738 after the FOMC announced a 25 basis point cut but failed to breach key resistance at 0.7740 and subsequently eased back to spend the rest of the day between 0.7710 and 0.7730.Overnight the currency pair continued to drift sideways until rumours that Citibank were to announce huge sub prime losses circa 30bn started doing the rounds.This saw yet another round of carry trade unwinding which gathered pace when the story officially hit the wires.The NZD fell 1 cent from 0.7710 to 0.7610 and opens slightly higher than the low this morning.

Australian dollar

AUD retreats from 23 ?? year highs. AUD also spiked 80 points to a peak of 0.9345 after the FOMC announcement then washed around for the rest of the session with any dips bought into.Better than expected retail sales data also provided support.Overnight the AUD felt the full impact of carry trade unwinding and consequently fell over 1 ?? cents against the US dollar.

Major currencies

USD consolidates ahead of payrolls data.The USD was steady overnight but saw some weakness against the JPY on news that a couple of brokers had downgraded two of the US ??�larger banks.This also saw the Dow under pressure and rekindled concerns that recent fall-out from the credit crisis may still be having a dampening effect on risk appetite.However overall trading volumes where quiet,with investors content to retain current positions ahead tonight ??�s employment data.

Economic data and events

US factory ISM slips from 52.0 to 50.9 in Oct.Despite orders still growing, export orders in particular persistently strong,and jobs picking up,the factory ISM dipped to its lowest since March,pulled down by an apparent slight contraction in factory output.This result would be consistent with GDP growth slowing in the fourth quarter (as is widely expected).

US personal income up 0.4%,spending 0.3%in Sep.Most of the personal income and spending report was old news,with quarterly totals having already been published in yesterday ??�s GDP report.Income growth was firm through the quarter,whereas spending tapered off a little in September due to a pull-back in services spending after a strong August.The core PCE deflator rose 0.19%before rounding,but an upward revision to July from 0.1%to 0.2%(actually 0.16%)explained the stronger Q3 deflator yesterday.

US initial jobless claims fell 6k to 327k last week though less than half of the 30k jump in claims in the middle of October has been reversed so far. Also,in the prior week,continuing claims spiked back towards the levels of late August.Taken together,it does seem that the labour market might have softened a little through October.

UK manufacturing PMI falls from 55.1 to 52.9 in Oct,its slowest pace for the year so far.The output,orders and jobs components were all softer,as were input and output prices.Also,the CBI retail survey remained weak in October,extending the downtrend from 31 in May to just 10 last month. However it is worth noting that right through this period of apparent softness in retailing,the official retail sales figures have continued to impress.