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A plethora of data will hit the wires today and no matter what we get, there is month end selling of the USD. All week CBankers have been trying to verbally influence their own currency and that of the greenback. Trichet on his pulpit yesterday, preaching that the dollars strength is ‘important’. It will be, but, not this soon! Policy makers are also sign posting their exit strategy thoughts. The Fed’s Fischer said yesterday ‘when it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity to that which we pursued monetary accommodation’. His thoughts are backed up by Plosser, who indicated yesterday ‘they recognize the costs that significantly higher inflation and the ensuing loss of credibility will impose on the economy if we fail to act promptly, and perhaps aggressively, when the time comes to do so. This is verbal confirmation of an exit strategy and a ‘big’ warning for everyone that has underweight positions in the dollar. You have been told!

The US$ is weaker in the O/N trading session. Currently it is lower against 15 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Yesterday’s US data was disappointing on all fronts. Dealers had been expecting a tad more bullish US consumer confidence number, close to a 70 print by some ‘eternal’ optimists. However, the market was dealt a winded blow with a 53.1 reading, below the high spirits that was seen last month (54.1). The reading was also below market consensus of 57. Digging deeper, the sub-category’s fared no better. The present situation index (a gauge of consumer’s assessment of current economic conditions) also retreated to 22.7 vs. 25.4. Consumer expectation for economic activity over the next 6-months managed to slip to 73.3 vs. 73.8. And the nail in the coffin was provided by consumers being less optimistic about the current employment situation. The number who think jobs are ‘hard to get’ rose to 47% vs. 44.3% and those on something and believe jobs are ‘plentiful’ fell to 3.4% from 4.3%. To most it’s a pessimistic report, clearly the ‘go-to variable’ for the Fed, the ‘consumer’, is apprehensive about the medium term outlook and their disposable incomes, if any! This may not be a strong Q for the holiday retailer if we continue to hoard and live in fear of lack of jobs. Basically this report collaborates the Fed belief that ‘little income growth and tight credit is curtailing household spending and will slow the pace of the economic recovery’.

Other data yesterday showed that US house prices continued to improve in July (-13.3% vs. -15.5%), rising for the 2nd-consecutive month (seasonally adjusted) while the y/y decline continued to decelerate (less bad is good!). We are currently straddling levels last seen 19-months ago. Fundamentally we could be treated to some further improvements over the next few months, but, beware, downside risks are present. Firstly, are the prices sustainable? Analysts will tell you that mortgage re-sets hit a temporary low last month, and we have entered the next wave which is not suppose to peak until mid-2011. Secondly, US government incentives for 1st-time buyers are expected to end in Dec! Finally, the so called shadow inventories (stock that’s currently not on the market for various reasons) continue to mount, this piece of data never appears in month supply figures and may lead to further foreclosures. The basic concept of supply and demand can only pressurize prices even further! It also worth noting that July house prices rose +1.2%, m/m (the strongest gain in 2-months).

The USD$ is currently lower against the EUR +0.23%, GBP +0.76%, CHF +0.30% and JPY +0.52%. The commodity currencies are stronger this morning, CAD +0.51% and AUD +0.99%. The loonie pared some of its initial gains yesterday on the back of commodities struggling and with the Russian Central Bank cutting interest rates. The perception that the global economy is once again faltering had investors shying away from riskier currencies. It was believed that the Russian were considering of diversifying their reserves into both AUD and CAD. However, because of liquidity constraints provided by each currency, Russian governors have denied that they would consider undertaking this procedure. If they had intended to do this, BOC Governor Carney would have been slightly peeved especially after his speech earlier this week on the strength of the currency. He continues to ‘try’ and talk down the CAD’s strength. He said that the Canadian economy is recovering from its 1st recession in 17-years and warns that the ‘persistent strength’ in the currency could offset the improvement in growth and keep inflation below its target (2%). Again he reiterated that he would keep O/N rates at historical lows (+0.25%) until June of next year unless ‘the inflation out look changes dramatically’. After last weeks abysmal retail sales number (-0.6% vs. +0.8%), that will not to be an issue in the medium term! He remains optimistic and even commented that the economy may grow faster in the 2nd-half of this year than their ‘twice’ revised predictions. Year-to-date the currency has appreciated +12% vs. the -18% decline that was recorded last year. The consistently weaker USD has made Canadian products uncompetitive. This is a global story, not an isolated case. On the flip side Canada has ‘stuff’ that the rest of the world requires and that commodities. Carney said that the Cbank is ‘not out of bullets in terms of implementing policy’, but, they are not also ‘trigger-happy’. For the time being the loonie remains consistently range bound influenced by commodity and global equities. On USD rallies, investors will want to covet some CAD.

The AUD dollar rose to its highest level in 13-months on the back of Government reports showing that retail sales advanced for the 1st-time in 3-months (+0.9% vs. -0.9%). Fundamental reports continue to convince traders to add to their bets that the RBA will need to raise rates by year end. With global bourses advancing, investors risk appetite desires higher-yielding asset classes (0.8820).

Crude is higher in the O/N session ($67.16 up +45c). Oil remained under pressure yesterday ahead of today’s weekly inventory report. The data is expected to show that inventories grew by +1m barrels, w/w, along with gas and distillate fuel inventories. For now with energy fundamentals remaining unconvincing, it would be a safe bet that the black stuff will remain confined to its $10 range of $65-$75. Already this week there has been a number of factors that aided crude. Firstly, after last weeks aggressive retreat (-8%) the market was in need of some sort of correction. Secondly, crude managed to follow stocks higher on the back of proposed mergers in the tech and health industry. Finally, the threat of imposing greater sanction on Iran because of its nuclear program has heightened geo-political issues. Technically oil prices are inflated, they are not supported by market fundamentals, but geo-politics will always keep the black-stuffs prices artificially high. Do not expect the situation to change anytime soon. Last week, the surprise jump in US crude and product stocks had raised doubts that prices may have run ahead of demand fundamentals. But because of Iran, the landscape has changed again. So we may have to forget fundamentals in the short term again and see politically what develops for guidance.
Gold prices have stayed close to home after the initial surge in the value of the greenback. However, speculators see an opportunity for the yellow metal to gain with the dollar’s renewed pressure and heightened geo-political tension in the Middle East boosting the demand for the ‘yellow metal’ as an alternative investment ($1,001).

The Nikkei closed at 10,133 up +33. The DAX index in Europe was at 5,736 up +23; the FTSE (UK) currently is 5,183 up +23. The early call for the open of key US indices is higher. The 10-year bonds eased 2bp yesterday (3.29%) and are little changed in the O/N session. Treasury prices continue to maintain their bid on pullbacks as investors speculate that the Fed will signal that interest rates will stay at record-low levels for the ‘foreseeable future’ as inflation remains subdued. This has even Bill Gross from PIMCO, the world’s largest Bond fund favoring government debt amid deflation concerns. With US consumer confidence also unexpectedly falling this month, has risk aversion investors seeking yield. The remainder of the week will be data laden, ending with Sept.’s US job numbers.

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