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Downward pressures eased for the US dollar as the Treasury’s Paulson pushed to increase the Fed’s regulatory control over the financial markets – strengthening the weakened dollar against most of the major currencies. The US dollar appreciated the most against the New Zealand dollar as the NBNZ Business Confidence index plunged to a 17 year low, and was followed by the Yen as Japan’s Industrial Production dipped for the second consecutive month. Against the European currencies, the US dollar rose against the euro and the British Pound as the pairs dropped to 1.578 and 1.984 respectively. The commodity currencies also fell against the US dollar as oil and gold prices dropped, while the Swiss Franc was the only one to prevail against the US dollar as investors curbed their risk appetite.

Treasury Secretary Henry Paulson lifted spirits as he unveiled a new regulatory overhaul in response to the mounting turmoil in the financial market, and looked to push the Fed as the new ‘market stability regulator.’’ Paulson disclosed that the implementation of the new oversight will not be put into practice until economic situations have improved, and stated that he is looking to increase the flexibility of the system to ‘better adapt to change,’ and ‘effectively deal with inevitable market disruptions.’ However, mixed data continues to hamper the growth prospects for the US as business activity deteriorated in the Milwaukee region. The NAPM-Milwaukee index plunged into a state of contraction as it fell to 47.0 from 53.0 as rising input costs limited the number of new orders. Conversely, the Chicago Purchasing Manager index picked up to 48.2 from 44.5, but failed to move the markets as business activity remained in a state of contraction.

The securities market rose for the first time in four days as Paulson’s speech helped to restore confidence in the financial sector. As a result, the DJIA picked up 46.49 points to bring the index to 12,262.89, with only 3 out of the big 3 declining. Among the broader indices, the S&P500 rose 7.48 points to 1,322.70 points amid 201 stocks hitting a new 52 week low.

Demands for risk free bonds picked up as risk aversion picked up – sending US Treasury prices higher. Conversely, the benchmark 10-Year yield fell to 3.41 percent from 3.44 percent, while the 2-Year yield dropped to 1.59 percent from 1.65 percent.

Looking ahead, all eyes will be focused on the Reserve Bank of Australia rate decision at 3:30 GMT, which is expected to hold rates at 7.25 percent as inflationary pressures persist to add downside risks. The ISM Manufacturing index will follow at 14:00 GMT, and we expect the release to add downside pressures for the US dollar as the index is forecasted to fall to 47.5 from 48.3.