Philly Fed Index Drops

Good day…the currencies certainly had a good day yesterday as the Philly Fed Index came in below expectations. The Fed Bank of Philadelphia’s general economic index fell to minus 0.7 this month, from minus 0.4 in September, which was the first contraction in the gauge since April 2003. Readings below zero signal a decline. This decline, along with weak leading indicators caused the biggest move of the week for the dollar. With the market again focusing on the weaker U.S. data, the dollar is moving back into a negative trend.

There is no data to be released this morning, so I would expect the markets to continue yesterday’s selling of the dollar.

Canadian consumer prices increased at a less-than-expected annual rate in September, and the value of the loonies increased for the third day in a row. Canadian consumer prices increased at an annual rate of 0.7% in September – a two and half year low – as gasoline prices fell the most since 1949. Overall, consumer prices fell 0.5% in September versus the previous month, the biggest decline since last October. The Bank of Canada closely follows the CPI reports, and next meets on December fifth to set rates. Even with this slight pull back in prices during September, the recent surge in commodity prices has helped boost the Canadian dollar.

The Australian dollar also continued its climb versus the U.S. dollar, as traders added to bets that the central bank will increase the benchmark interest rate. The currency has risen every day since October eleventh; when the Reserve Bank of Australia Governor Glenn Stevens said he was more likely to lift the overnight cash rate target than to cut it. The Reserve Bank of Australia will meet to decide the next rate move on November eighth, and Governor Stevens said he would look for guidance from the consumer prices report, which is due out on October twenty-fifth.

As we have seen with the U.S. and Canadian reports on inflation, don’t expect to see a rise in prices for October. With a large drop in energy prices, the overall number will likely drop. Currency traders will be looking at the core number, and if we get a rise there, expect to see more strength from the Aussie dollar. The recent increase in gold has also helped both the Aussie and Canadian dollars.

Thailand posted a record trade surplus in September, as exports climbed to the highest ever, and falling crude prices reduced import bills. Thailand is Southeast Asia’s second-biggest economy, and this posting makes it the country’s second straight monthly surplus – rising to $1.51 billion from $328.6 million in August. Exports have been a key driver of the Thai economy, and with the political situation stabilizing, expect the currency to continue to be one of the best performers versus the U.S. dollar.

The Singapore dollar had the biggest weekly gain since June on outlook for faster economic growth. Reports this month showed that Singapore’s economy expanded more than expected last quarter, with exports rising for the first time in three months. The country’s economy is doing well as the Asian region continues to expand. An excellent way to take advantage of this growth in the Asian region is our new Orient Opportunity Index CD, which includes the Thai Baht, Singapore dollar, Japanese yen, and the Hong Kong dollar. With a three month interest rate of 3.55% APY, this Index CD is an excellent way to invest in the growth of the Asian region.

Currencies today: A$ .7599, kiwi .6692, C$ .8905, euro 1.2617, sterling 1.8854, Swiss .7948, ISK 68.19, rand 7.5248, krone 6.67, SEK 7.30, forint 208.30, zloty 3.06, koruna 22.46, yen 118.27, baht 37.25, sing 1.5712, INR 45.32, China 7.9025, pesos 10.82, dollar index 85.69, Silver $12.01, and Gold… $599.33

That’s it for today…What a game last night!! The Mets made it exciting, but our Cardinals are off to Detroit for another World Series appearance (I just hope this one turns out better than our last). Our New York office will be buying lunch for us, as the bosses had a wager. What a game!! Hope everyone has a great weekend.

Chris Gaffney
October 20, 2006

The Daily Reckoning