Asian shares declined broadly in overnight trading as investor appetite waned due to global economic uncertainty. Of the major indices, leading the way down was the Shanghai, which retreated 1.15%, followed by Hong Kong, printing 0.82% in the red. The contraction in equity prices guided the regional risk bellwethers, the Aussie & Kiwi Dollars, lower.
The AUDUSD, which a matter of days ago was carving out fresh multi-month highs has pulled back to near pre-Fed levels. The New Zealand Dollar also gave up ground to the USD, as well as JPY. However when compared to the Australian Unit the New Zealand Dollar massively outperformed of late. Thanks to speculation that the Reserve Bank of New Zealand may be forced to increase local interest rates to help stem a hot housing market and inflation the NZD touched its strongest value in almost 5 years versus the AUD.
During the European session a weaker than expected German Business Climate result has led the Euro and the Sterling lower. The number, which printed 107.7, measures the sentiment of manufacturers, builders, wholesalers, and retailers. The overnight release fell short of the Bloomberg consensus forecast which called for 108.0. Despite being the 5th consecutive expansion and only narrowly missing expectations, the data has put the EUR and GBP on softer footing versus many of their peers, including the USD and JPY. Head to head the GBP underperformed, with rumours that there’s good selling interest for the British Pound at these post Fed levels. The move in GILT yields, which ties back to speculation that the Bank of England will start to sing a less dovish tune has seen the GBP has touch 8-month highs against its mainland counterpart the Euro and Greenback, as well as 4-year highs versus the Japanese Yen.
Turning to the American session, it seems the Debt Ceiling issue is once again making headlines. Now that the Fed frenzy has passed and markets have refocused on fiscal policy let the political posturing begin. The quick and dirty of it is that the opposition Republicans seem to be holding the Debt Ceiling hostage as the push towards a government shutdown in a bid to force the Obama administration to defund its flagship Obamacare legislation. Based on current spending it looks like the debt ceiling will be reached sometime in mid-October, the political wrangling is only going to get more exciting as we approach that deadline.
If markets don’t feel that any progress is being made as the cut off approaches, look for standard safe-haven asses like the JPY, CHF, & USD (to a lesser extent) to outperform. Gold and silver would also stand to gain from uncertainty.
Canadian Retail Sales were released early this morning and printed +0.6 versus the consensus Reuters forecast of +0.60%, Core number, which strips out volatile items was +1.0% (versus expectations of +0.6%). The immediate reaction in the markets has seen a small pop in Loonie values, but it’s still generally inside of overnight ranges. Markets seem preoccupied with the American Consumer Confidence data out shortly. According to a Reuters survey expectations are 79.90, a significant miss could see the USD given back its overnight gains as it may indicate that the Federal Reserve will have to push back its schedule for Tapering even further.
Further reading:
Forex Analysis: EUR/USD Consolidates after Hitting 7-Month High
German Business Climate
