US Dollar Falls as Asian Stocks Advance on Earnings, South Korea GDP

Key Overnight Developments

• Australian Wholesale Inflation Drops to Record Low on Currency Gains
• US Dollar Lower as Earnings, South Korea GDP Boost Asian Equities

Critical Levels



The Euro advanced in overnight trading, testing as high as 1.5063 against the US Dollar. The British Pound traded lower, sliding as much as 0.3% against the greenback.

Asia Session Highlights



Australia’s Producer Price Index data showed the annual pace of wholesale inflation slowed to 0.2% in the third quarter, the lowest on record. Prices for imported crude materials (-19.2%) and intermediate goods (-10.7%) proved to be the biggest drag on the overall metric as a stronger domestic currency boosted Australians’ purchasing power. Indeed, the Australian Dollar rose for the third straight quarter in the three months to September, adding 4.86% against a trade-weighted basket of top currencies as the broad-based rebound in risk appetite attracted yield-seeking investors. The outcome hints that forthcoming inflationary pressure may not be a pronounced as the Reserve Bank of Australia had anticipated when it because the first major central bank to raise interest rates in the aftermath of last year’s global financial crisis and credit crunch. Still, futures and overnight index swap markets show traders continue to price in another 0.25% increase in benchmark borrowing costs when the RBA announces rates on November 2nd.

The US Dollar traded broadly lower, with the Dollar Index down as much -0.4%, as stocks gained in Asian trading and weighed on demand for the safety-linked currency. The MSCI Asia Pacific regional benchmark rose 0.5% after Toyota Industries, an auto parts manufacturer controlled by Toyota Motor Co, unexpectedly reported a profit of 200 million yen versus expectations of a 9.6 billion loss. Shares received added support after South Korea’s economy grew 2.9% in the third quarter, the most in three years.


Euro Session: What to Expect



The economic calendar looks fairly tame in European hours, with November’s German GfK Consumer Confidence Survey the only firmly scheduled item on the docket. Expectations call for the headline index to advance to 4.5 after setting a 16-month high at 4.3 in the previous month. GfK, a Nuremberg-based market-research firm, has chalked up the rebound in sentiment to comparatively better labor market conditions and low inflation. Indeed, Germany’s unemployment rate is over a full percentage point lower than the Euro Zone average, while consumer prices shrank for the first time in 17 years in the third quarter, boosting Germans’ purchasing power. Looking ahead, however, the picture is far from rosy: German labor market have been propped up by a government subsidy to employers, a scheme that is likely to be unwound along with other stimulus as the public deficit soars to levels unseen in at least two decades (expected to average close to 5% of GDP this year and in 2010), while falling prices will work against economic growth if entrenched deflation expectations begin to encourage consumers and businesses to wait for a better bargain and delay spending and investment.

On balance, rebounding consumer confidence metrics across the spectrum of major countries has been amply visible for several months and may not prove particularly market-moving, with the trends behind the outcome likely to have been priced into the exchange rate at this point. To that effect, risk trends are likely to dominate as the catalyst for price action, with traders keeping a close eye on third-quarter earnings reports from German pharmaceutical giant Merck KGaA and US telecommunications powerhouse Verizon Communications.


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