The dollar has no supporters!

We all know the score with Friday’s US unemployment numbers. We managed to print a 26-year high with an unemployment rate breaking the 10% psychological level to register 10.2%. Now we have got that out of the way, where do we go from here? G-20 members over the w/d pledged to continue to keep supporting their economies. They agreed to keep interest rates low and maintain record budget deficits until recoveries take hold. One will get no argument from the US. Looser monetary and fiscal policy will support equities it seems and whip the greenback again! We had expected a quiet day in this holiday shortened week…..not to be!

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.

Loose fiscal and monetary policies will only weaker the USD further, hence the O/N move. Yes, we have a 26-year high unemployment rate of +10.2% in the US, even a broader measure pegs it at +17.7%, but it’s the ‘stimulus actions’ that are causing the ill effects to the USD again. On Friday, just after the US employment headline release, Obama, signed into law, two elements of fiscal stimulus worth many billions, firstly, first time home buyers tax credit was extended and secondly, the emergency employment benefit will run for an extra for another 20-week’s. With Bernanke determined to keep rates low and no-out cry from G20 members will only result in a weaker greenback.

The USD$ is currently lower against the EUR +0.53%, GBP +0.67%, CHF +0.49% and higher against JPY -0.16%. The commodity currencies are stronger this morning, CAD +0.75% and AUD +0.45%. When it comes to Canadian unemployment numbers over the last 3 months, no analyst’s prediction is in the same ball park! The Canadian economy managed to pare -43k jobs last month (market was expecting a gain of +10k) and push the unemployment rate up 2-ticks to an unexpected +8.6%. The data provides much stronger evidence that Canada has some ways to go to exit this recession. The report will make it easier for Governor Carney at the BOC to follow through on his pledge to keep borrowing costs at record lows until June of next year to promote growth unless of course the inflation outlook changes materially. The loonie managed to do an about turn and weaken on the back of softer oil prices due to the US numbers. However, in the O/N session commodities has found their lost traction and provided the loonie support. Governor Carney will not have to worry about using in the short term a combination of currency intervention, credit and quantitative easing options to influence the loonie value. The currency had been strengthening like most major currencies vs. the USD. The BOC believes that a strong currency is detrimental to economic growth. For now the loonie remains in a tight 3cent trading range with dealers continuing to play the support and resistance levels until fundamentally or technically told otherwise.

In the O/N session the AUD rallied for a 4th-consecutive day after a home-loan approvals report advanced the most in 6-months (+5.1% vs. +3.1%). The currency has also climbed on speculation that the Fed will now have to keep its O/N borrowing costs low for a considerable period of time after Friday’s disappointing headlines, thus boosting demand for higher-yielding assets. Last week, Governor Stevens indicated that the Aussi economy will expand at more than three times the pace forecasted in Aug., and signaled he and his policy makers will continue to lead the world in raising borrowing costs. The currency is well supported by commodity prices and expects dealers to remain better buyers on pullbacks (0.9284).

Crude is higher in the O/N session ($78.54 up +100c). Oil prices plummeted on Friday after the disappointing 26-year high US unemployment rate conjured up fears that future fuel demand will once again weaken. The black stuff managed to pare close to 3% of its value after the report. But, in the O/N session has found some legs. The commodity is contained within this $7 trading range for the time being, however, support levels are questionable as demand destruction remains strong and healthy in the US. Even last weeks bullish inventory report provided little support. The EIA report showed a surprise decline in US crude stocks. Crude inventories fell -4m barrels last week vs. expectations that stocks were to rise by +1.4m barrels. Imports of crude fell -764k barrels, or -8.6%, to +8.13m barrels a day (the lowest level in 3-months). Refineries surprisingly are operating at +80.6% of capacity, down -1.2% from the previous week and the lowest rate in 6-months. A similar story for gas, where gas inventories fell -287k barrels to +208.3m, w/w, vs. an expected increase of +400k barrels. A tad better news from distillates (includes heating oil and diesel), stocks fell -378k barrels to +167.4m. The market had been expecting a decline of around -1m barrels. Bear in mind one week does not make a trend! Speculators have had their ‘fun in the sun’, let fundamentals drive the market short term.

After another winning week last week, gold remains better bid this morning and on course to leave the $1,100 an ounce resistance level in its wake, as a questionable greenback continues to support the ‘yellow metals’ appeal as a hedge against currency depreciation. Disappointing US employment numbers along with the RBI purchase of 200 metric tons or $6.7b of the yellow metal from the IMF has speculators wanting to push this commodity higher. Year-to-date, gold has climbed +25% ($1,109).

The Nikkei closed at 9,808 up +19. The DAX index in Europe was at 5,558 up +70; the FTSE (UK) currently is 5,192 up +49. The early call for the open of key US indices is higher. The US 10-year bonds eased 1bp on Friday (3.51%) and are little changed in the O/N session. Treasuries climbed after the US unemployment rate managed to break that psychological 10% barrier. The short end of the yield curve touched their lowest yields in 5-month. However, supply remains an issue this week and should provide some resistance. The US treasury plans to sell a record $81b in its quarterly auctions of long-term debt and replace its inflation-protected 20-year bond (TIPS) with a reintroduction of the 30-year security. They will issue $40b 3-year notes today, $25b 10’s tomorrow and $16b 30-year bonds on Nov. 12th.

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