- Price action in the first part of the overnight session was characterised by USD strength and carry trade unwinds as risk aversion continued to dominate following shockingly weak US data. The RBA then surprised the market for the second consecutive month by delivering a larger than expected rate cut of 75bps (cons: -50bps) which saw AUD underperform further. This sentiment was reversed prior to the European open when a clear re-emergence of risk appetite drove an outperformance of high yielders (NZD/USD +1%, AUD/USD +0.7%), a sell-off in USD (DXY -0.7%), a bid in equities (FTSE +0.9%, DAX +1.3%), and a rally in US stock futures (S&P +1.9%, Dow +1.7%).
- Data in the US today is second tier, and much of the focus will be on the US election results. Opinion polls point toward a landslide victory for Obama and the Democrats are widely expected take control of the White House, however, there remains some uncertainty as to the sharing of power between the White House and Congress. Nevertheless, in 6 out of the last 7 elections, regardless of whether the Democrats or Republicans won, the USD rallied in the 6 months following the election.
- USD/CAD edged higher throughout most of the overnight session before slumping over 100pips down to 1.1767. There are no Canadian data releases scheduled for today.
- AUD recovered throughout the European session following a poor performance in Asia which included a fall of over 100 pips following the RBA’s larger than expected 75bp rate cut to 5.25% (cons. -50bp). A sharp deterioration in world financial markets, and the raft of poor global activity data and its implication for Australia via commodity prices, equity markets and confidence were cited as the key deciding forces behind the decision.
- NZD was the strongest performing G10 currency overnight (NZD/USD +1%). After losing around 70pips during the Asian trading session, risk aversion diminished heading into Europe which led to an increase in demand for high yielders. In terms of data, commodity prices slumped to an 18 month low in Oct, falling 7.4%m/m to take the y/y rate down to -10.9%, well below the +35.9%y/y peak observed in May of this year. Dairy prices collapsed from 1.6%y/y in June to -34.1%y/y, pointing at a move toward 0.50 for NZD/USD.
- JPY was the only major currency to underperform USD overnight as demand for carry in the latter half of the overnight session led to an offered tone in the low yielder. The Japanese Ministry of Finance FX intervention data for Sep 29th to Oct 29th 2008 confirmed that there was no intervention in JPY over that period, despite the warnings from various Japanese officials about JPY strength and the potential for concerted intervention. Though there was no confirmed intervention over this period, the risk of unilateral intervention should JPY strengthen rapidly remains, particularly given the BoJ’s rate cut last week. Against a basket of currencies JPY is 5% stronger than the March ‘04 intervention level.
- CHF: Annual CPI fell back toward the SNB’s 2% ceiling from Sep’s 2.9% level, but decelerated by less than expected to register 2.6% in Oct (cons. 2.5%).
- NOK: The Oct PMI slipped down to 42.5 in line with expectations (cons: 42.5).
Risk appetite re-emerges in Europe
November 4th, 2008 · No Comments
Tags: FOREX Market Update
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