The US dollar is firm within fairly narrow ranges that have prevailed this week as the market consolidates its recent gains. Draghi’s comments to the European Parliament are similarly dovish in tone to the October post-ECB press conference. Sterling posted outsized gains yesterday, pushing above $1.5200, and those gains were extended to almost $1.5250 today before sterling was sold back to $1.5175, leaving it almost flat against the euro.
Japanese machinery orders rose 7.5% in September, more than twice the Bloomberg consensus estimate, and fully recouping the 5.7% decline in August. The Nikkei was up fractionally, led by utilities and tech while the decline in oil prices weigh on the energy sector.The dollar has been confined to about a third of a yen range.Thus far it has the makings of the third consecutive lower higher, and the greenback did make new lows for the week near JPY122.75.With sizable options struck at JPY123 expiring today through Monday, this area will be pivotal.
The Australian dollar is easily the best performing major currency, gaining about 1% against the US dollar today.The Aussie was lifted to almost $0.7155, highs for the week and the 20-day moving average by a stellar jobs report.It is true that Australia’s employment report tends to be volatile, and today’s report may overstate the case, but the underlying movement is in the right direction.The RBA recently recognized improved economic prospects, and specifically cited the labor market.
Australia grew 58.6k jobs in October, nearly four times more than expected, and of these 40k were full-time positions. On top of that, the September series was revised to show less weakness.The unemployment rate fell back to 5.9% from 6.2%, totally unexpectedly, and this is despite the rise in the participation rate to 65.0% from 64.9%.
Politics in the Iberian peninsula have attracted market attention this week. After the collapse of the minority center-right government in Portugal, a new government is still awaited.DBRS is the only ECB-recognized rating agency that gives Portugal an investment grade rating.It is set to review it tomorrow and at a minimum a cut in the outlook is anticipated.A loss of its investment grade status, however, could make Portuguese bonds unacceptable for QE participation and cheap lending by the ECB. Portugal’s 10-year yield is off 5 bp today leaving it up about 7 bp over the past week.
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