US Dollar Advances as Nikkei Leads Stocks Lower in Asian Trading

Key Overnight Developments

• New Zealand Dollar Tumbles as Labour Party Attacks RBNZ Over Exchange Rate
• US Dollar Advances as Nikkei Leads Asian Stocks Lower on MUFJ Share Sale

Critical Levels



The Euro and the British Pound fell as much as -0.4% against the US Dollar in the overnight session as the greenback traded broadly higher on the back of renewed risk aversion (see below).


Asia Session Highlights



The US Dollar surged against most major counterparts as stocks declined in Asian trading, boosting demand for the safe-haven currency. The Nikkei led markets lower as Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, said it will sell ¥1 Trillion in new shares. The New Zealand Dollar led losses against the greenback as the flight from risk was compounded as New Zealand’s main opposition Labour Party withdrew their support of the central bank’s inflation-targeting approach to setting monetary policy, saying this has led to higher interest rates and boosted the domestic currency to the detriment of the export sector. Party leader Phil Goff said “We want policy that will keep our exchange rate as stable and competitive as possible.”

Japan’s All Industry Activity Index, a timely monthly proxy for the trajectory of GDP figures (which are released quarterly), registered the first decline since March, falling -0.6% in September from the previous month. The construction sector led the metric lower, slipping -1.9%.

In Australia, Average Weekly Wages grew at an annual pace 5.2% in August, the slowest in a year. Lackluster wage growth may prove to weigh on overall inflation, which traders took as a sign that the Reserve Bank of Australia may shy away from further monetary tightening in December. A Credit Suisse gauge of priced-in interest rate hike expectations fell four basis points from yesterday, showing traders now see the probability of another 0.25% increase at 66%.


Euro Session: What to Expect



UK data dominates scheduled event risk in European hours. Retail Sales are set to rise 0.5% from the previous month in October with the annual growth rate accelerating to 2.9%, the highest yet this year. That said, the report surprised to the downside in August and September as unemployment continued to rise and consumers diverted money away from spending to pay down debts; both of these trends are still in place, so a disappointing outcome is not out of the question this time around as well. Indeed, consumer credit shrank -262 billion pounds in the third quarter, the most in at least 16 years, while the jobless rate surged to 7.8% and is expected to top 8% by the end of the year. The monthly budget deficit figures are set to show improvement, with the government’s Net Cash Requirement (PSNCR) set to decline to £4 billion while Public Sector Net Borrowing expected to shrink to £7 billion in October from £19.4 billion and £14.8 billion in the previous month, respectively. The bulging deficit, set to average over 12% of GDP through the end of next year, has weighed heavily on the sterling on fears that Europe’s third-largest economy may lose its ‘AAA’ sovereign credit rating.

The Organization for Economic Cooperation and Development (OECD) is also set to release the second edition of this year’s bi-annual global Economic Outlook. Upward revisions seem likely considering the clear moderation in economic conditions across major economies since the last outlook was published in June. Traders have also seen a number of upward revisions in projections from key central banks and the International Monetary Fund (IMF) in recent months, suggesting that the report will offer little that has not been priced in already and is unlikely to prove market-moving unless a downside surprise is revealed.

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