USD vulnerable as shutdown drags on
The US Federal government shutdown continues with the meeting of congressional leaders in the White House meeting late yesterday showing the parties involved are far from a compromise on resolving the government shutdown. President Obama is prepared to negotiate anything but only once the continuing resolution (CR) is passed allowing the government to re-open. The market response has not been a contagion in risk-off (Asian equities faring ok this morning) but rather USD grinding lower against low-beta core currencies (EUR, JPY and CHF) but holding better against the riskier currencies (AUD, NZD, CAD and NOK). Indeed, there is a risk a protracted shutdown results in a more significant negative economic impact as we approach the October 17 debt ceiling deadline which in turn could trigger expectations of an even later Fed QE tapering. That said, the surprise risk is mostly USD positive if an agreement is reached and/or the (limited) flow of the incoming US data surprises to the upside. Jobless claims will be released today despite the shutdown, along with the non-manufacturing ISM index. While we expect the latter to see a partial pay-back from August’s broad-based strength, the manufacturing ISM has already surprised to the upside earlier this week. The markets could be sensitive to the employment sub-component which hit 55.4 in September).
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BNP Paribas