The Forex Daily Digest – September 2, 2009

U.S. stocks fell sharply yesterday on fears of increasing U.S. bank failures and anxiety about the lasting strength of the recent equity rally, driving investors into the relative safety of bonds and the U.S. dollar.

The USD had a good day as a drop in stocks led investors to find the shelter of low-yielding currencies. The dollar index stood at 78.705, up from 78.001 in Asian trade and from 78.242 on Monday. The JPY held its own against the dollar, holding on to its gains from earlier in the week after the victory of Japan's opposition Democratic Party.

The AUD fell after the Reserve Bank of Australia left its cash rate unchanged and issued an upbeat economic assessment without providing any clues as to when it might tighten its policy. The RBA governor said in a statement released after the central bank's monthly policy meeting that the Australian economy has been "stronger than expected citing optimism in consumer spending, exports and business investment.

The CAD declined for a third straight day as a drop in equities and crude oil, the nation’s biggest export, which forced investors into safer assets. The CAD wiped out earlier gains and traded near the lowest since Aug. 19th as worry that banks will give details of more losses. This overshadowed higher-than-forecast U.S. manufacturing and pending home-sales data which sent stocks plummeting. The Canadian dollar weakened 1.5 percent last month after the Canadian Finance Minister voiced his concern that the loonie’s increase might hinder the nation’s economic recovery.

And Sterling extended losses versus the dollar yesterday, falling to its lowest since mid-July, as the slide in U.S. stocks increased the market's aversion to risky currency trades. The GBP fell to its lowest level in about six weeks.

Bank of Japan Deputy Governor Kiyohiko Nishimura said yesterday that central banks must have flexibility to take unconventional policies in times of crisis, but they should be temporary and unwind as markets improve. He also said that although unusual policy measures can cause side effects, the benefits of market intervention should outweigh costs of altering resource allocation.

In economic reports for the day, look for the ADP Employment Change, the revision to the second quarter Productivity numbers, Factory Orders for July, Crude Inventories and the FOMC minutes from the August 12th meeting.

Hovnanian Enterprises, Inc., Casella Waste Systems, Inc., Joy Global Inc., and Zale Corporation are all scheduled to release their earnings numbers today.

Hope you have a very profitable trading day and I’ll see you back here tomorrow with another Forex Daily Digest –

Happy Trading,

James Dicks