Greenback Rallies as Risky Assets Fall

* The dollar rose on Monday as risk aversion increased. The US 10-year yield climbed above the 3.50% resistance while commodities and stocks declined. The S&P 500 index fell 12.65 to 1,066.95. The dollar index rose, tentatively broke its downtrend and traded above the 76 handle for the first time in two weeks. The yen was little changed against the dollar but rose against most other major currencies. The overbought euro fell the most in nearly two months. Sterling was little changed after its Friday plunge. The Australian dollar fell for a third day as commodity prices consolidated strong monthly gains.

* The USD/CAD rose to a 3-week high as crude oil plunged and the Bank of Canada reiterated its concern about the strong Canadian dollar. BOC Governor Mark Carney repeated his warnings that a strong loonie could be a significant drag on the economy and additional downward pressure on inflation. After finding support at the 1.02 handle, the USD/CAD is testing the important 1.07-area resistance. If the downtrend is broken, a strong rally and the beginning of a trend reversal may occur.

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Financial and Economic News and Comments

US & Canada

* The Chicago Fed national activity index declined to -0.81 in September from -0.65 in August, showing “economic activity approaching pre-recessionary levels,” the Federal Reserve Bank of Chicago said.

* Midwest manufacturing output increased in September. The Chicago Fed Midwest manufacturing index advanced 1.0% to a seasonally adjusted 82.3 in September after rising 1.6% to 81.6 in August, the Chicago Fed said.

* The Dallas Fed general business activity index was at -3.3 in October versus -6.4 in September, indicating Texas manufacturing activity declined at a slower rate this month, the Federal Reserve Bank of Dallas reported in the October Texas manufacturing outlook survey.

Europe

* The GfK German sentiment index unexpectedly declined to 4.0 in November from a downwardly revised 4.2 in October, indicating Germany’s consumer confidence fell for the first time since September 2008, according to a report by GfK Group. The economic expectations index rose to 8.7 in November, the second positive reading since June 2008, from 3.4 in October. The income expectations index declined to 12.9 from 16.0 and the index of consumer propensity to buy fell to 26.1 from 36.5.

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Asia-Pacific

* Australia’s producer prices increased a less-than-expected 0.1% q/q in Q3 2009 after a 0.8% q/q decline in Q2, PPI, led by price rises in electricity, gas and water (+12.1% q/q), bakery product manufacturing (+10.4% q/q) and petroleum refining (+6.0% q/q), data from the Australian Bureau of Statistics showed. The Q3 PPI was up 0.2% y/y, following Q2’s 2.1% y/y rise.

Source: Hans Nilsson

26.10.2009