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- Greenback struggles against the majors
- AUD outperforms on RBA
- BoJ under pressure to act
However, we saw a mild recovery in the greenback on the back of a better than expected ISM manufacturing PMI reading. This reading came in at 56.2 (versus expectations of 55.3) and helped lift sentiment in the wake of the shutdown.
Higher trading range for AUD/USD
AUD/USD continued its run from yesterday’s Asian trade and managed to push to a high of 0.9436 overnight. This was the highest level for the pair since the no-tapering announcement on September 19. It is becoming clear the RBA has no need for an immediate cut and the fact that yesterday’s statement didn’t express concern about a high AUD really gave AUD bulls more reason to push the pair higher.
AUD/USD is now establishing itself in a higher trading range and will be back in focus today ahead of new home sales, building approvals and trade balance data. Building approvals are expected to be down 0.7% with a trade deficit of $0.45 billion at 11.30 AEST. Any beats on the data front would surely lead to further gains in the pair.
Elsewhere in the risk space, the euro remains in focus as we approach the Italian confidence vote. As it stands, optimism is growing that Italy can avert a political crisis. As a result, the 1.35 level continues to hold for the single currency. The ECB is also set to hit the wires later today, with the rate decision due out. While no change is expected from the ECB, Mario Draghi’s press conference could be a source of volatility with particular risk on the long side of the trade. There have already been hints of potentials rate cuts and another LTRO; all this suggests we could hear further dovish commentary, if not action from the ECB.
Payrolls might be dropped
On the USD side of the equation, the shutdown threatens to see some releases dropped from the calendar this week, with the non-farm payrolls being the main culprit. As a result, tonight’s ADP non-farm payrolls will carry significant weight; with 177,000 jobs expected. There is also a raft of Fed members set to hit the wires, with Bernanke himself speaking tomorrow morning. It’ll be hard for him not to comment on the shutdown and with the debt ceiling so close, expectations of tapering might be pushed back.
Meanwhile Japan will be concerned by the yen strength in the wake of its safe-haven appeal and the sales tax hike announcement. The consumption tax will be pushed up to 8% and they will try to counter this with a ¥5 trillion corporate tax cut. While the market wasn’t too pleased by the expected corporate tax cut, we feel this really puts pressure on the BoJ to act when it meets on Friday. As it stands, USD/JPY is hanging at around 98 with a fairly tight range being maintained.