• The dollar dropped to an almost 2-week low versus the yen on Wednesday. US durable goods orders unexpectedly decreased in June. The Federal Reserve said in its Beige Book that US economic growth eased in some areas over the past two months. The S&P 500 declined 7.71 to 1,106.13. The euro traded at $1.2989 today, compared with $1.2999 yesterday. German consumer-price inflation quickened in July. The Canadian dollar erased a gain against the greenback as crude oil prices fell. The Reserve Bank of New Zealand raised its key interest rate by 25 basis points to 3.00%, as expected.
• The AUD/USD fell today. Slowing Australian consumer-price inflation growth in Q2 2010 increased speculation that the Reserve Bank of Australia will keep the key interest rate unchanged at 4.50% at the August 3 RBA meeting. Yesterday the pair rose to the highest level since May 10 but failed to stay above the 0.9050 resistance. Unless this resistance is broken, the overbought AUD/USD is likely to consolidate its recent gains. If the 0.88-0.87 support is broken, the AUD/USD outlook will turn bearish.

Financial and Economic News and Comments

US & Canada

• US durable goods orders unexpectedly fell 1.0% m/m to $190.5 billion in June, a second consecutive monthly fall, after a revised 0.8% m/m decrease in May, data from the Commerce Department showed. Excluding transportation, durable goods orders slid 0.6% m/m to $144.6 billion, the second decline in three months, following May’s upwardly revised 1.2% m/m gain. Durable goods orders rose 15.9% y/y nsa in June; extransportation orders rose 15.0% y/y nsa. Shipments of non-defense capital goods excluding aircraft, used in calculating GDP, increased 0.2% m/m in June after a downwardly revised 1.5% m/m advance in May.

• The Federal Reserve said today in its Beige Book that “economic activity has continued to increase, on balance, since the previous survey, although the Cleveland and Kansas City Districts reported that the level of economic activity generally held steady.” The Fed also noted that “among those Districts reporting improvements in economic activity, a number of them noted that the increases were modest, and two Districts, Atlanta and Chicago, said that the pace of economic activity had slowed recently.”

Europe

• Germany’s consumer prices rose as forecast 0.2% m/m in July, a third consecutive monthly rise, after a 0.1% m/m increase in June, according to preliminary July CPI data from the Federal Statistical Office. The consumer-price inflation rate quickened as expected to 1.1% y/y from June’s 0.9% y/y. The harmonised index of consumer prices, calculated for European purposes, increased 0.3% m/m in July after 0.0% m/m in June. The HICP rate accelerated to 1.2% y/y from June’s 0.8% y/y.

Asia-Pacific

• Confidence among Japanese small and medium sized enterprises improved for a second consecutive month in July, with the indicator increasing to 48.1 from June’s 47.4, a survey from Shoko Chukin Bank showed. A number below 50 means pessimists outnumber optimists.
• Australia’s consumer prices increased a lower-than-expected 0.6% q/q in Q2 2010, less than a 0.9% q/q advance in Q1, according to CPI data from the Australian Bureau of Statistics. The consumer-price inflation rate unexpectedly slowed to 3.1% y/y from Q1’s 2.9% y/y.

• The Reserve Bank of New Zealand raised the official cash rate to 3.00% from 2.75%, as forecast. RBNZ Governor Alan Bollard said in his statement: “While the outlook for economic growth has softened somewhat, it is still appropriate to continue to reduce the extraordinary level of support implemented during the 2008/09 recession….The coming increase in the rate of GST and other government-related price changes are likely to temporarily push annual CPI inflation above 3 percent. The Bank does not expect this price spike to have a lasting impact on inflation. However, the price and wage setting behaviour of firms and households will be monitored for evidence of any increase in inflation expectations.”

FX Strategy Update