Forex Exchange Morning Report

US equities rose after consensus-beating US jobless claims and trade balance reports were released, but pared gains around midday NY, the S&P500 index currently up 0.5%. Commodities are moderately weaker, oil down 0.5% as US petroleum inventories were reported to have climbed to a post-1990 high (although oil stocks were lower), and copper 1.6% lower after China reportedly forced a liquidation by unauthorised local speculators. US 10yr treasury yields rose 10bp to 2.75%, and the 2-10yr curve steepened by 5bp to 220bp. The 30yr auction was poor, 5bp above pre-auction market, with lower bidding volume and offshore interest.

The US dollar is little changed overall, having dipped with the equities rally and risen with the later sell-off. The EUR was also directionless, chopping within a 1.2665 to 1.2765 range and resting at 1.2700. Underperformer Swiss franc moved from 1.0100 versus the US dollar to 1.0165. GBP fi rmed from 1.5400 to 1.5480 and settled at 1.5440. The BoE kept the policy rate and asset purchase target unchanged as expected, no statement issued. USD/JPY remained inside 83.60 and 83.95.

Outperformer AUD continued its march higher in the wake of a strong employment report, clearing 0.9220 resistance to reach 0.9277 after the US data. That level was last traded on 4 May.

NZD rode on AUD's coattails, reaching 0.7287. AUD/NZD slipped slightly from the post-employment report peak of 1.2785 to 1.2730.

US trade balance improved to -$42.8bn in July offsetting most of the widening experienced in June. Exports were up 1.8% while imports fell 2.1%. The better than consensus outturn suggests some moderate upside risk to the Q3 GDP numbers as the drag on GDP from trade is likely to be slightly less than previously anticipated.

US initial jobless claims fell sharply to 451k in the week ending 4th September from 478k the previous week. The four week average moved lower to 478k from 487k previously. As a result of Labour Day, some states were unable to report claims and as such estimates were used. The BLS stated that they do not expect major revisions next week but until confi rmed in the data, it is too early to draw any defi nitive conclusions regarding any improvement in the labour market.

UK visible trade balance widened sharply to a record £8.67bn led by a sharp rise in imports. Imports rose 3.1% in June to £30.9bn, the highest since July 2008. Of concern, the long awaited recovery in exports failed to materialise yet again falling by 0.9%. On the plus side, the rise in imports suggests some growth in domestic demand. There was deterioration in the non-EU trade balance to -£4.8bn while the total trade balance also fell to -£4.9bn, the lowest since 2005.

The Bank of England held Bank Rate steady at 0.50% and made no change to the Asset Purchase Programme, maintaining the stock of purchases at £200bn as expected.

Canadian housing starts were broadly in line with expectations, falling to 183.3k in August from 188.9k. The new housing price index declined 0.1% on the month (July) reversing the 0.1% gain the previous month. The decline was the fi rst contraction in 13 months. On an annual basis, new house prices eased to 2.9% from 3.3%.

Canadian international merchandise trade balance also unexpectedly suffered a fall to the lowest on record to -C$2.7bn. Exports fell 0.7% with a decline in volumes reported in most sectors. Canada's trade balance with the US continued its steady decline as exports to the US fell 2.2% while imports rose 2.9%.

Outlook

AUD/USD and NZD/USD outlook next 24 hours: AUD momentum is strong, and any pullbacks should fi nd support in the 0.9200-0.9230 area. The next major upside target is the 0.9400 area, which provided an insurmountable obstacle between October 2009 and April. NZD may have energy for another leg higher to around 0.7300 before consolidating.

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