FX Flows

From the FXWW Chatroom – Japan Sept industrial output surprised market. Month-on-month rose 1% versus estimates of fall 0.6%. This is a turnaround from August’s 1.2% drop. UsdJpy fell from 121.00 to 120.75 as the unexpected strength could deter BOJ action on Friday. However some said the annual industrial production number is still weak at minus 0.9% and they still see BOJ action. UsdJpy bids are reported at 120.50 and offers 121.50. There was demand into fix and this somehow helped to hold up UsdJpy. 

Tokyo names were picking up EurJpy as they walked in; but somehow EurUsd had thick offers above 1.0930. Buyers turned around after the Japanese industrial output and sent the cross into 131-handle. EurUsd backed off to 1.09005. I hear bids are placed below 1.0890 belonging to positive gamma. There is a decent size option expiry today at 1.1000. 

We were told that domestic buyers in AudUsd below 0.7100 and now, exporters have gathered under 0.7080. Aussie rates have stabilized and little reason to sell spot. Both our spot and rates traders prefer to buy this on dips. On the day, Jon suggesting range of 0.7080 to 0.7140. 

Post-FOMC, attention turned to RBNZ. According to our Toronto strategist Bipan Rai, the statement maintains that further easing is likely which will undo the 2014 hike cycle. RBNZ is clearly pushing against the recent rally in the Nzd but overall for now are content to wait. Failing to return above 0.68, pressure has now increased for NzdUsd. Rates are also indicating weaker NzdUsd, nearer to 0.6430. 

We have had number of queries on the oil move overnight. Crude Oil Futures jumped near 5% and some linked this to the announcement by Pemex. Mexico’s state-owned company said it had received permission from the USD to import as much as 75,000 barrels a day of high-quality “light” crude starting this month. Our oil specialist Katherine Spector disagreed saying this talks were ongoing and nothing new. The move in oil is purely short covering. In fact there was also a speculation that Saudi, Kuwait and Russians are holding talks but no one can confirm this. 

UsdCad came back on less dove FOMC. Oil futures are paring gains and lending support to UsdCad. One real money account just sold into the 1.3200 but easily absorbed. We see offers lined up above 1.3240 from corporate accounts. Bipan reminded us of Canadian GDP to be released on Friday. We maintain a bullish short-term bias and would prefer to respect the trend line (1.3145) for the time being. 50-day SMA is at 1.3183. 

FOMC left door opened for Dec, cuts reference to global economic and financial developments, adding household spending and business fixed income investments increasing. Remember, there are 2 labour reports before the next Fed meeting so anything can happen. 

Asians 
Interesting remark by PBOC assistant Governor Yin Yong that China’s interest rate has relatively big room. This sounds like indication of further rate cuts. 

Witnessed a large sell off in USDCNH at the open and led to speculation of official interest. The move from 6.40 to 6.39 caused a panic among interbank traders. Pair continued to come under pressure, marking 6.3835 low from morning high 6.4004. 

Just got this from MNI, that according to the transcript of a speech Li made to the Communist Party School, Chinese Premier Li Keqiang said an annual 6.53% growth in the next five years until 2020 is needed in order to meet the government’s target of building a moderately prosperous society. Li also repeated that China will not use yuan depreciation to boost exports. Apparently this speech is being circulated via WeChat. 

While Usd was mixed in the majors, it held well versus the Asian currencies. One thing that was discussed this morning, our strategist Patrick Bennett said Fed has now removed the possibility of Asian central banks’ move. 

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