Yen Steadies
The sell-off of US Treasury securities finally came to a halt overnight, preventing USDJPY from advancing any further. Crucially, the 10y yield has yet to break above 1.86% and so the yen may find a near-term foothold at these levels – at least until next week’s FOMC minutes. The overnight session produced little in the way of fresh news, although AUDUSD fell 30 pips after Australia’s Treasury rejected the idea of FX intervention as a means of weakening the Australian dollar – on the grounds that it would be ineffective and potentially destabilising. Instead, the Treasury made it clear that if the currency were judged to be too strong, interest rate cuts could be used to induce weakness. Thursday’s batch of US data was mixed at best. Housing starts were marginally weaker in July, while the August Philly Fed index improved to -7.1 from -12.9 (but still came in on the soft side of market expectations). Jobless claims were 1k higher than consensus.. Positive data surprises continued in the UK with July retail sales up by 0.3% m/m (cons. -0.1%). Our UK economist notes that retail sales could be very volatile over the next couple of months because of the Olympics and weather conditions. In its annual report on Canada, Moody’s projected real GDP growth of 2.1% and 2.5% for 2012 and 2013, respectively. It noted that the housing market poses “manageable risk” to federal finances. CAD showed little reaction to the International Securities Transactions report in Canada, which revealed a CAD7.9 bn net disinvestment from Canadian securities by non-residents in June. This followed the record investment of CAD26.1 bn in May. As noted in our latest FX Comment (“Going With The Flow In Canada”), the quarterly trends in the securities transactions report underline the growing attraction of CAD as a diversification play in an environment where global risk appetite remains stable. Ahead today, the July CPI report in Canada is due, along with the Univ. of Michigan confidence survey.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank