Forex Exchange Morning Report

US equities fell sharply after opening, but largely recovered and the index is currently down 0.2%. Minor negative news, which may have contributed to the move, included a number of US company earning results missing analyst estimates, a fraud probe into the military insurance sector, and Fed member Bullard opining the central bank should not pledge to keep rates low but rather buy US treasuries (the latter news was likely a coincidental rather than causal factor). Commodities had solid gains, oil up 1.9%, copper up 1.4% to a post-4 May high, and Baltic Dry shipping costs continued to rebound from the 15 July low. US 3mth Libor fell 1bp to 0.466% as funding pressures ease slightly. US treasuries were little net changed, the 7yr auction a more tepid affair than Wednesday's 5yr, bidding coverage around average at 2.8 times, but foreign appetite weaker.

The US dollar index ranged narrowly in NY after a positive risk tone saw it lose ground in Asia. EUR pushed higher in Asia and early Europe to a 1.3107 high, last seen on 4 May. USD/CHF fell from 1.0500 to 1.0374, the franc the day's outperformer. The yen also fared well, from 87.50 to 86.57 against the dollar.

AUD continued its domestic session run higher to 0.9043, consolidating thereafter around 0.9000.

NZD followed the AUD higher to 0.7287, settling later around 0.7240. AUD/NZD added slightly to yesterday's post-RBNZ bounce, reaching 1.2460.

US initial jobless claims fall 11k to 457k last week, which is probably a fair estimate of where claims are really at, after several weeks of volatile and distorted data caused by seasonal adjustment issues related to the temporary summer shutdown of auto plants for new model retooling. Continuing claims in the prior week jumped 81k to 4565k but that outcome would have refl ected those seasonality issues as much as any genuine move in ongoing claims.

Japanese retail sales +0.4% in June and +3.2%yr as expected. Department store sales remained weak, declining by 0.9% in June and 7.4% over the year. However, supermarket sales were up 1.8% in the month and 0.4% over the year. European business/confi dence surveys stronger in July. The business climate indicator rose from 0.40 to 0.66 and economic confi dence lifted from 99.0 to 101.3 in July, both outcomes indicative of some nonchalance on the part of survey respondents re the potential impact of fi scal retrenchment on European growth prospects.

German unemployment falls 20k in July, pulling jobless rate down from 7.7% to 7.6% (compared to recent 8.3% peak a year earlier). The short-work scheme (cutting hours not jobs) has helped turn the labour market around earlier than would have otherwise been the case.

UK house prices fall 0.5% in July, according to Nationwide, for a 6.6% yr annual growth pace (down from 10.5% yr in April). More housing supply is coming onto the market dampening previous upward price pressure. Other data showed a £0.1bn fall in consumer credit outstandings; a weak £0.7bn rise in mortgage outstandings; and 48k new mortgage approvals in June (lowest since Feb). These outcomes don't directly feed into GDP estimates but the subdued credit picture at the end of Q2 does hint at some downside revision when revised GDP estimates are published next month.

Canadian industrial product prices down 0.9% in June, their fi rst fall in three months, led by lower prices for petroleum and metals.

Outlook

AUD/USD and NZD/USD outlook next 24 hours: US equity fatigue should constrain the currencies overhead. AUD is unlikely to breach Wednesday's high of 0.9070. AUD is showing early signs of a major reversal, and should be capped by 0.9000 today. NZD looks heavy without yield support and 0.7280 caps for now.

Events Today