The FOREX Daily Digest – October 23, 2009

The USD increased against the EUR on speculation that China will withdraw fiscal and monetary stimulus and as U.S. initial jobless claims increased more than forecast, reducing risk demand. A 13.9% year-on-year increase in Chinese industrial production and one analyst said an 8.9% rise in third-quarter gross domestic product, while impressive, was "not quite as strong as some had been hoping.” The U.S. currency may remain under pressure as the Federal Reserve trails other central banks in increasing borrowing costs.

The AUD and NZD fell, after hitting the strongest level in more than 14 months, as Asian stocks dropped and China’s economic growth fell short of some analyst’s forecasts. The currencies also weakened against the yen as U.S. stocks dropped after an analyst cut Wells Fargo & Co., the largest U.S. home lender, to “sell.” Both the AUD and the NZD continued declines as China, Australia’s largest trading partner, release the third quarter figures (8.9%), compared with the median estimate from economists for a 9 percent expansion.

The Bank of Canada said the country’s stronger currency will keep inflation below policy makers’ two percent target for almost two years and hinder a recovery from the first recession since 1992. The central bank raised its assumption for where the Canadian dollar will trade through 2011 to 96 U.S. cents from the 87 U.S. cents it assumed in July. Meantime, Canadian retail sales increased in August twice as fast as forecast, climbing 0.8 percent to C$34.5 billion ($32.8 billion). The median forecast was for a 0.4 percent rise.

Prime Minister Stephen Harper said Canada could still see more job losses, even though it has added jobs for the last two months. Harper made his remarks in a question and answer session at a conference organized by the Canadian Chamber of Commerce in Toronto.

The Bank of Japan is leaning towards scrapping some corporate finance support programs in December, rejecting government pressure to delay an exit from credit markets. To fend off criticism that the move could hurt Japan's fragile economy, the BOJ will stress that it will keep interest rates near zero and continue funneling abundant cash to the market.

International bank lending fell by over $300 billion or 1.1 percent in the second quarter as the financial crisis continued to restrain credit. Lending to the non-bank sector between April and June did expand for the first time since the third quarter of 2008, however, increasing by $48 billion, or 0.5 percent.

Russia's central bank said that Russia and India have agreed to study the possibility of using national currencies in bilateral trade. The decision was taken at a meeting of the banking section of the Russia-India inter-governmental commission. Brazil, Russia, India and China make up the BRIC informal group of major emerging economies. Russia’s Deputy Prime Minister said earlier this week that Russia wants to boost its trade with India to $10 billion next year and to $20 billion by 2015.

The Federal Reserve data shows that the U.S. commercial paper market expanded for a 10th straight week, signaling companies are more able to tap short-term capital. For the week ended Oct. 21st, the size of the U.S. commercial paper market, a vital source of funding for daily operations at many companies, rose by $39.9 billion to $1.366 trillion outstanding, from $1.326 trillion the previous week.

On the economic calendar to end the week watch for the preliminary U.K. Gross Domestic Product and the BBA Mortgage Approvals for the U.K., both scheduled for release at 4:30 am, Fed Chairman Ben Bernanke is scheduled to speak at the Boston Fed Conference at 8:30 am and at 10 am the Existing Home Sales report will be released.

Earnings slated for release include Microsoft, Ingersoll-Rand, Fortune Brands, Kia Motors, Schlumberger, Honeywell and Whirlpool.

Happy trading,

James Dicks