Today is Columbus Day in the US, one of the official government holidays. This means that banks are closed today, government workers are off and many private businesses are closed for the 3day weekend. It is considered a lesser holiday and therefore the outside of banks, financial markets are operating. US lawmakers are technically off today also and President Obama is booked giving Columbus Day speeches and making public appearances. This is day Americans celebrate the discovery of the Americas by Christopher Columbus. Elsewhere there was little major data except the weekend release of Chinese trade balance numbers, which should cause a stir in early trading. The trade balance printed well below expectations showing a significant drop in exports while imports boomed narrowing the gap between imports and exports. The numbers show a stabilizing of the internal economic situation in China which is helping to support the New Zealand dollar which has risen to trade at 0.8332. The Australian dollar is caught between a rock and a hard place as they rely on their number one trading partner for sales of ore and minerals used in manufacturing and production, but with exports falling there is a likelihood that demand for these products could wane. The Aussie is trading at 0.9468 in the green this morning but the support is coming off the weakness in the US dollar, which tumbled after news this weekend that lawmakers could not reach agreement on debt ceiling and budget so the government remains closed and the debt ceiling moves closer.
The US dollar declined this morning to trade at 80.38 giving up 12 points after its positive climb on Thursday and Friday, when it looked like lawmakers would reach an agreement. Also on Friday, the University of Michigan consumer sentiment report printed below expectations, which can be accounted for by the bickering in political circles and the ongoing government shutdown. Unfortunately an disturbance in consumer confidence extends to retail sales, unemployment and eventually GDP as consumers stop spending when they worry. The Treasury Department has determined that Thursday October 17, Friday morning as the day the government runs out of cash to pay its bills. However, it’s at the end of the month that things will get hairy—that’s when $6 billion in interest payments on outstanding government debt falls due. Basically, the US Government receives 70 cents in taxes for every dollar it spends, so it has to borrow to meet that shortfall. The government can’t suddenly cut its budget by 30 per cent—that would plunge the country into deep recession, and a range of services would be stopped or curtailed, from social security payments to health care for the elderly and government infrastructure projects like highway construction.
As traders begin to worry with only 72 hours left to reach agreements there has been a slow shift to risk off trading. Sentiment has shifted toward the Japanese yen as the safe harbor as the JPY climbs to trade at 98.30 gaining 26 points against the US dollar. The yen has also shown strength against its crosses with the EURJPY trading in the red at 133.31.
Weakness in the US dollar has given the euro additional momentum adding 23 points to trade at 1.3562 as the pound also benefits moving up to 1.5981. The pound is at risk this week with a couple major data releases including employment numbers and retail sales.
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