There were important currency moves during the Asian session on Tuesday with volatility higher than in recent sessions. Australian Reserve Bank Governor Stevens was again unusually blunt in his assessment of the Australian currency with comments that the Australian dollar was still overvalued and eventually likely to fall substantially given economic trends. In response, AUD/USD retreated sharply from around 0.9575 to near 0.9520 and the pair remained vulnerable later in the day with a test of support below 0.9500.
Sterling was also a significant mover as GBP/USD was subjected to heavy stop-loss selling on a break of support in the 1.6140 area with a slide to lows below 1.6070. The latest UK economic data confirmed a significant increase in mortgage approvals while consumer lending was slightly weaker than expected. GBP/USD remained vulnerable as disappointment that resistance in the 1.6250 area had not been taken out, was compounded by speculation that all the favourable economic news has been priced in.
EUR/USD again hit resistance above the 1.38 area with a firmer dollar initially hampering attempts to rally further and there were important reservations over engaging in long positions at these levels with short-term players trying to push the pair lower.
The headline US retail sales data was weaker than expected with a 0.1% decline for September in the delayed report. The underlying figure was more positive at 0.4%, in line with expectations, and the overall impact was limited. Similarly, the latest PPI data had little impact. Consumer confidence dipped to 71.2 for October from 80.2 previously which was the lowest figure since March and maintained underlying concerns that the economy would slow.
Markets were expecting a dovish Fed policy statement from the latest FOMC meeting which started on Tuesday with an announcement due on Wednesday. These expectations were important in curbing any underlying dollar support and retail positioning was also an impediment to significant appreciation. Although EUR/USD retreated to the 1.3750 area, support did not come under serious threat.
ECB member Nowotny stated that there was no realistic prospect of a rate cut from the central bank and that there were no tools which could be deployed against Euro strength. The comments dampened any expectations of an ECB response and EUR/USD spiked back towards 1.38.
USD/JPY has managed to push higher in early New York trading with a peak at 98.0 and held the bulk of intra-day day gains despite lacklustre US data as the yen lost ground on the crosses.