The U.S. Dollar traded mixed despite the release of reports showing that new home construction climbed to the highest level in close to four years, indicating that the real estate market is recovering. Other releases from the National Association of Realtors revealed that Existing Home Sales advanced by 7.8 percent to a seasonally adjusted 4.82 million units last month, thereby exceeding expectations for a 2 percent hike. The release was issued after official figures confirmed that Housing Starts increased by 2.3 percent in August while Building Permits dipped 1 percent. The U.S. Dollar remained unchanged against the Canadian currency after data revealed that Housing Starts increased less than forecast. But the Loonie dipped against the greenback following an announcement indicating that the U.S. augmented its crude oil stockpiles by 8.53 million barrels last week. The Canadian monetary unit weakened against the majority of its peers as crude oil, its biggest export, extended losses amid speculation that the world’s largest central banks won’t be able to spur economic growth through recently implemented monetary easing measures.
The Euro rallied versus the U.S. Dollar despite positive economic data out of the U.S. However, the shared currency came under pressure on reports that German lawmakers are attempting to undermine the creation of a European banking union and are trying to dissuade policy makers from the idea of having the ECB oversee the region’s banks. Risk appetite remained subdued as market investors continue to worry over the fact that Spanish Prime Minister Mariano Rajoy hasn’t decided on whether to request financial assistance from the ECB. The British Pound pared losses against the U.S. currency following the release of data showing that Existing Home Sales in the U.S. increased far more than predicted last month.
The Yen rallied after the Bank of Japan announced it will follow in the footsteps of the ECB and the Federal Reserve and will augment its asset-purchasing program in an effort to bolster economic growth. Investors believe the additional 10 trillion Yen in stimulus will do very little for the Japanese economy. The effects of the Bank of Japan’s decision were limited, as China and Japan continued to grapple over the ownership of a specific set of islands.
Lastly, the Australian and New Zealand Dollars strengthened versus the Yen after the Bank of Japan announced the expansion of its stimulus program, thereby fueling demand for high-yield assets. The Kiwi surpassed a four-month high versus the Yen as the BOJ indicated that it would add 10 trillion Yen to the existing 45 trillion Yen program designated for purchasing assets. The Aussie’s advances were limited as investors await key data on Europe’s PMI, due out later today.
EUR/USD- Germany Wants Separation
A drop in volatility suggested that the Draghi-inspired advance of the Euro is coming to an end. However, the Euro rallied against the U.S. Dollar following the release of better than expected housing data, and as Germany’s Finance Minister stated that his country has faith in Portugal. But gains for the shared currency were limited as reports from the Dow Jones news wires suggested that German lawmakers would prefer for the European Central Bank to continue in its role as monetary policy decision-maker, and for a separate entity to oversee the Euro-zone’s banks. In fact, German lawmakers added that a separate body with supervisory powers would provide the larger nations more votes.
GBP/USD- BOE Publishes Minutes
The British Pound pared losses against the U.S. Dollar after data out of the U.S. revealed that the real estate market is indeed improving. Meanwhile, the Bank of England issued the minutes of the most recent monetary policy meeting. These revealed that the nine members voted unanimously to maintain the interest rate unchanged at 0.50 percent and to leave the asset purchasing plan at 375 billion Pounds. The bank’s board members indicated that the current purchasing program is fairly new and it’s therefore difficult to assess its effects. The committee expects inflation to dip lower; however they believe that the rise in energy costs will probably prompt inflation to decline at a slower pace.
USD/JPY- BOJ Increases Stimulus
Just as investors anticipated, the Bank of Japan announced that it will expand its asset buying program by 10 trillion Yen. Analysts described this as an aggressive easing measure, and they believe that the move was prompted by last week’s Fed actions which caused the Yen to increase against the U.S. Dollar. Bank officials indicated that this doesn’t mean they’ll buy assets at a quicker pace, but they’ll do so until the end of next year. The greenback gained against the Yen and traded at a one-month high after the BOJ stated it will leave the interest rate at zero to 0.1 percent. However, the Yen recouped its losses as the central bank indicated it will increase stimulus.
NZD/USD- Kiwi Climbs On BOJ Decision
The New Zealand Dollar rose to a two-day high versus the greenback after the Bank of Japan released a report indicating it will augment its monetary easing program, though concerns over the debt situation in Spain limited the Kiwi’s advance. On the data front, New Zealand’s Current Account deficit grew more than anticipated in the second quarter of 2012. According to official figures, the country’s Current Account shortfall was 4.9 percent of GDP.
Today’s economic calendar shows that Japan will issue the BOJ’s Monthly Report. The Euro region will release data on Manufacturing and Services PMI. The U.K. will report on Retail Sales MoM and YoY; and on CBI Industrial Trend Orders. The U.S. will announce Initial and Continuing Jobless Claims, Manufacturing PMI and the Philadelphia Fed Manufacturing Index.