Dollar Flat, Awaits Inspiration

The US dollar is little changed amid a light new stream.  There are three notable developments.   First, the yen is staging a bit of a recovery from its recent slide.  The dollar has pulled back after approaching the September high near JPY100.65.  The euro is slipping after nearing last month's high.   This seems largely a function of technical factor rather than new fundamental developments.  The market is awaiting Japanese trade figures and the report on the government pension fund's investment plans, both of which are due on Wednesday.  

Second, the Norwegian krone has been boosted by strong GDP figures and is up a little more than 0.4% against the dollar (which is the same as the euro, near midday in London).  Norway reported a 0.7% increase Q3 GDP (0.5% for the mainland economy).  This was a little more than the consensus expected, but the overall level of output was even higher as Q2 GDP was revised from 0.8% to 1.2%.    The euro was trading at 3-year highs against the krone as recently as last week (~NOK8.36).  Initially it traded above NOK8.28 today before breaking down to chart support seen near NOK8.20.  A convincing break would allow for NOK8.15 and possible NOK8.05 on ideas that the Norges Bank is firmly on hold, while the ECB and the Sweden's Riksbank have scope to ease further.   Indeed, speculation appears to be increasing of a Riksbank rate cut at its Dec 17 meeting. 

Third, the Australian dollar has been lifted by more talk of liberalization in China and minutes from the central bank's recent meeting that underscores the official comfort with the current monetary setting; thus signalling no near-term change in policy.  The Australian dollar extended its recent gains, spiking toward $0.9450 before pulling back into the upper end of yesterday's range.  The gains took it above the downtrend line drawn off the late October high, but the intra-day move seems exhausted.  A close above the trendline, which comes in near $0.9375 would be helpful from a technical perspective.   The 20-day moving average comes near $0.9460 and held Aussie's upticks in check earlier this month.  

We also note that demand was robust for the sale of Australia's longest maturity.  The 20-year bond was yielding 4.86%.   While the maturity may be too long for central bank reserve managers, the bond likely attracted some foreign interest.  Settlement is Nov 26. 

As more details emerge from China's plenary session, the more many become confident of greater liberalization.  Fitch indicated that the plenary reforms may be credit positive for local governments.  Today it was the PBOC that indicated that regular intervention would cease and a managed float system would be established and the daily band would be expanded (currently 1% band around the official dollar fix is permitted).  The destination is clear, though it has been for some time from the PBOC's point of view, which has been one reformist voices/institutions.  What is not clear is the time-frame and intermediary steps.   It sounds promising and encouraging and implementation even more so.  

The out-performance of Italy's asset markets we noted yesterday in response to the weekend the developments that signaled the continued waning of Berlusconi's destabilizing influence in the country's politics is still evident today, but a little less so.  The stock market is a little under water, but in line  with the Dow Jones Stoxx 600, which is off about 0.6%.  The bond market is posting minor gains, while the other euro area bonds are a little lower on the day.  The firmness of Italian bonds is notable also in light of the strong industrial orders report.  Industrial orders in Sept rose 1.6% on top of the upwardly revised 2.2% in August (from 2.0% initially).  This lift the year-over-year rate to 7.3%, the highest in 2.5 years. 

Outside the Q3 US Employment Cost Index, there are no US economic reports.  During market hours, only the Fed's Evans speaks, but after North American markets close and what will likely be thin Asian trading, Bernanke speaks before the Economist Club in Washington.  Yesterday, Dudley seemed more optimistic in his economic view, but seemed to signal no immediate desire to taper,