USD/CAD Surges as BOC Worries

* The dollar rose on Tuesday as risk sentiment declined. US housing starts increased less than forecast and producer prices unexpectedly fell, increasing worries about the economic recovery and deflationary fears. US stocks consolidated gains and the S&P 500 index fell 6.85 to 1,091.06. The yen declined modestly. The euro reversed earlier gains after touching the 1.50-handle resistance. Sterling was pressured by the UK’s record budget deficit. The overbought Australian dollar fell despite hawkish comments by the Reserve Bank of Australia.

* The USD/CAD surged after the Bank of Canada warned about the strong Canadian dollar. The BOC is worrying that inflation will fall below its inflation target and Canada’s economic recovery may falter. The BOC said: “Heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.” The USD/CAD is likely to trade between strong support in the 1.02 area and strong resistance in the 1.06. If the downtrend is broken, a strong rally may occur.

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Financial and Economic News and Comments

US & Canada

* US producer prices unexpectedly fell 0.6% m/m in September, the second fall in three months, after a 1.7% m/m rise in August, according to PPI data from the Labor Department. September PPI fell 4.8% y/y. The September month-on-month PPI fall was mostly due to energy, which decreased 2.4% m/m. The core PPI, which excludes food and energy, declined 0.1% m/m in September, but rose 1.8% y/y.

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* US housing starts increased 0.5% m/m to a seasonally adjusted 590,000 annual rate in September, lower than expected, from a downwardly revised 587,000 rate in August, according to figures released by the Commerce Department. Single-family starts rose 3.9% m/m in September, the sixth gain in the past seven months. Multiunit starts fell 15.2% m/m. Housing starts increased in the South, declined slightly in the Northeast and Midwest, and fell in the West. Building permits decreased 1.2% m/m to a 573,000 annual rate in September, below expectations, from an upwardly revised 580,000 rate in August. Permits for single-family units fell 3.0% m/m, the first fall in six months.

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* Canada’s leading economic indicators index rose a more-than-expected 1.1% m/m to stand at 220.2 in September, a fourth consecutive monthly gain, after an upwardly revised 1.2% m/m advance in August, LEI data from Statistics Canada showed, signaling the Canadian economy is recovering. Seven of the 10 LEI components rose in September, led by a 4.1% m/m rise in the housing index and a 4.0% m/m gain in Canada’s S&P/TSX stock price index.

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* Canada’s wholesale sales fell 1.4% m/m in August, the first fall in three months, to C$41.0 billion ($39.6 billion), led by weaker sales in automotive products, machinery and electronic equipment, and building materials, after a downwardly revised 2.6% m/m gain in July, Statistics Canada reported. August wholesale sales decreased 10.1% y/y. Wholesale inventories fell 1.1% m/m to C$55.5 billion in August, a sixth straight monthly fall, and decreased 2.3% y/y. The inventory-to-sales ratio was unchanged at 1.35.

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* The Bank of Canada maintained its key interest rate at 0.25%, as forecast, and said “the current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.” BOC Governor Mark Carney conditionally committed to keep the rate unchanged until June 2010.

Europe

* Eurozone construction output fell a seasonally adjusted 0.4% m/m in August, a fourth consecutive month-onmonth fall, after a revised 1.4% m/m slide in July, according to data released by Eurostat. August construction output dropped 11.3% y/y wda, following July’s revised 9.8% y/y decrease.

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* Germany’s producer prices declined a more-than-expected 0.5% m/m in September after a 0.5% m/m increase in August that was the first gain in 11 months, PPI data from the Federal Statistical Office showed. September PPI fell 7.6% y/y, following August’s 6.9% y/y decrease.

* The UK had a £14.8 billion ($24.3 billion) budget deficit in September, the most for the month since records started in 1993, after registering a £8.7 billion deficit a year earlier, the Office for National Statistics reported. The public sector net cash requirement showed the deficit widened to £19.4 billion in September, the most for the month since records began in 1984. Net debt totaled £824.8 billion in September, equivalent to 59% of GDP and the largest debt burden since at least 1974.

Asia-Pacific

* The Japanese leading economic indicators index, a measure of future economic activity, increased to a downwardly revised 83.2 in August (vs. preliminarily reported 83.3), a sixth straight monthly gain, from 82.5 in July, according to final August LEI data from the Cabinet Office. The coincident index, measuring present economic activity, rose to a downwardly revised 91.2 (vs. preliminarily reported 91.4), a fifth consecutive monthly rise, from July’s 89.8, indicating Japan’s economy is recovering.

* Japan’s machine tool orders continued their decline in September, falling a downwardly revised 62.1% y/y (vs. previously reported 61.9% y/y decrease), after a 71.5% y/y drop in August, according to final September data released by the Japan Machine Tool Builders’ Association. Domestic orders decreased a revised 55.5% y/y in September, while foreign orders tumbled a revised 66.2% y/y.

* The Reserve Bank of Australia signaled further interest-rate rises and tolerance of further aussie appreciation. RBA Board members agreed that “while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months,” asserting that “the current very expansionary setting of policy was no longer necessary, and possibly imprudent,” according to minutes of the October 6 RBA Board meeting, released in Sydney today. “It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation,” the minutes showed.

Источник: Hans Nilsson

20.10.2009