The Forex Daily Digest – October 28, 2009

The USD edged lower as stock markets stabilized, prompting some to move away from the perceived safety of the USD. The EUR extended gains against the USD, after data showed U.S. home prices for August increased for a fourth straight month. The Case-Shiller Home Price Index for August showed that prices improved. In the survey's 20-city composite index, home prices increased at a better-than-anticipated 1.2%, although they are still down 11.3% from August 2008. And consumer confidence in the U.S. unexpectedly fell in October for a second month as Americans worried about the lack of available jobs.

Yuan forwards declined as China’s central bank suggested it would try to maintain a stable exchange rate against the USD, which advanced against both the EUR and the JPY. News reports said the Chinese government will keep the yuan stable, citing central bank Deputy Governor Yi Gang. The nation’s diversification of its foreign-currency reserves should not cause short-term fluctuations in the exchange rate.

The CAD traded near a three- week low as U.S. stocks fluctuated and warnings from central- bank and government officials weakened demand for the currency. The CAD appreciated 14 percent this year. Bank of Canada Governor Mark Carney, who reiterated yesterday the CAD’s strength was a risk to growth and that measures could be taken to weaken it, testified in Parliament today on the monetary policy report the bank issued last week.

Carney repeated a conditional pledge to keep interest rates steady through mid-2010, saying the CAD’s strength would more than fully offset positive developments since July. In opening remarks to the Canadian House of Commons finance committee, Carney said recent indicators point to the start of a global recovery and that an upturn is under way in Canada following three straight quarters of contraction.

The AUD rose for the first time in four days as a Chinese official said industrial output in Australia’s biggest trading partner, will increase16 percent this quarter. The NZD also advanced. The AUD also gained from near a one-week low as business confidence increased in the third quarter. The NZD fell earlier as Prime Minister John Key said the kiwi’s strength was increasing inflation concerns, stoking speculation the Reserve Bank of New Zealand will hold off raising interest rates.

Commerce Secretary Gary Locke who is visiting China said the United States welcomes the rise in the yuan’s exchange rate in recent years but wants the currency to climb further. However, a Chinese trade official said that despite pressure for the yuan to appreciate, the currency would probably not see a major adjustment until the country's exports visibly improve. China has in effect re-pegged the yuan to the USD since mid-2008 to help its exporters, who were hit hard by a fall in orders as the global financial crisis deepened.

Japanese Finance Minister Hirohisa Fujii said that the USD was still the world's strongest currency and it was natural for Tokyo to keep large stockpiles of the dollar. Japan possesses the world's second-largest FOREX reserves after China. Tokyo gives no breakdown of the currencies, but most are believed to be held in dollars as a result of past intervention to sell the yen against the dollar.

On the economic calendar today watch for the September Durable Goods report, New Home Sales for September, as well as Crude Inventories for the week of October 23rd. Major earnings scheduled for today include ConocoPhillips, General Dynamics, International Paper, Coca Cola Enterprises, BorgWarner, CB Richard Ellis Group, Unisys, Qwest Communications, Goodyear Tire & Rubber, and Wyndham Worldwide.

Happy Trading,

James Dicks