Dollar Buyers Materialize in Asian Session Trade

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Market Drivers for October 29, 2013
RBA Stevens says Aussie is overvalued
Dollar stages a rally in Asia session trade
Nikkei -0.49% Europe 0.16%
Oil $98/bbl
Gold $1359/oz.

Europe and Asia:
JPY Unemployment rate 4.0% vs. 4.0%
JPY Retail Sales 3.1% vs. 1.9%
GBP Net Lending Approvals
GBP Mortgage Approvals

North America:
USD Retail Sales 8:30 AM
USD Case Schiller 9:15 AM
USD Consumer Confidence 10:00 AM

The dollar found buyers in a lively Asian session today, but the price action came to a virtual halt in European dealing as currency markets awaited key economic data out of US including a new FOMC statement due tomorrow. In Asia the greenback was strongly bid especially against the pound the and Aussie. Cable slid to a low of 1.6063 after triggering a slew of stops at the 1.6100 level and managed only a half hearted bounce in European trade.

The pair has failed to make fresh highs over the past week and a half and the pressure to take profits after a long protracted rally has finally taken its toll on the unit. Yesterday’s warning by BoE member Miles that rates were likely to remain low for an extended period of time and that a hike would be disastrous for the UK economy underline the fragile nature of the recovery and added to the selling pressure in sterling.

Although recent UK economic data has been consistently better than the rest of the G-10, currency traders are concerned that the numbers may have peaked in the summer and that the next batch of reports may show a slowdown in the rate of improvement. The UK PMI reports do not kick off until Friday with the release of the Manufacturing sector data, but if the number surprise to the downside, the pair could quickly drift lower to test 1.5900 support.

Meanwhile in Australia the Aussie came under assault after RBA Governor Stevens in a speech to a Investment conference noted that the Aussie was unusually high and was not supported by fundamentals. Governor Stevens stated that given the declining terms of trade the AUD will be materially lower in the foreseeable future.

In an interesting sidenote Governor Stevens indicated that the start of US policy normalisation by the Fed would lessen the RBA’s own policy difficulties. Clearly the RBA believes that the appreciation in AUD/USD is driven primarily to the Fed’s delay to taper QE rather than by intrinsic strength of the currency and Mr. Stevens’ remarks suggest a sense of frustration by Australian monetary authorities who no doubt would like to see their own currency lower in order to rebalance the economy.

Aussie tumbled toward the 9500 level but stopped just short of that barrier as reported option expiration activity held sellers at bay. But the pair could breach that level later in the data as North American traders come on line.

In North American trade today the focus will turn to US Retail Sales. The market is actually expecting a jump in the core number to 0.4% from 0.1% the month prior. The data will not reflect the dampening impact of the government shutdown so it may have less impact on trade than usual. Nevertheless, if the number prints in line or better they could provide a modicum of fresh energy for the dollar rally and help push all the high beta currencies to new daily lows as the session progresses.

Boris Schlossberg
Managing Director

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