U.S Government Closes, 2014 Fiscal Budget Fails, USDIDX Drops to Fresh 7-month Low - 1.10.2013

U.S. government goes into shutdown mode because Republicans and Democrats failed to agree on spending bill for 2014. Thousands of workers would remain home and many government services would not operate and should that continued would hurt business and consumer confidence. Moreover, could have a multiplied effect on GDP with economists projecting that a 21-day close down like the previous one, 17-year ago, could reduce the growth by 0.9-1.4%.

Almost two weeks ago the Fed decided to hold its asset purchases to support weak recovery until further evidence of a sustainable growth appear and now the lawmakers seem like they live in a different country, failing to agree to fund government operations. The US dollar index as of writing dipped below key support at 80.00, confirming its downtrend and moving to fresh 7-month lows, with next stop likely at 79.66.

USD Index

Elsewhere, the RBA decided to maintain its record low key rate at 2.50% as expected, saying that a below trend growth persists as the economy adjusts to weaker mining sector, unemployment rate increased and Australian currency is still high. AUDUSD pair jumped during the Asian session from support at 0.9284 to running level now at 0.9419, underpinned by stronger Aussie Retail Sales and further lifted by greenback’s weakness.

In Japan, NIKKEI 225 was rising in contrary to other global equity indices as Prime Minister Shinzo Abe said that Sales Tax would increase as planned from 5% to 8%, driving the USDJPY pair higher to cap at 98.71. The latter, was interpreted by market participants as a forward move to counter fight surging debt. However, risk averse due to U.S. failing to approve a budget for 2014 fiscal year and lower than projected Chinese Manufacturing PMI induced USDJPY pair to give back more than half of its previous gains, heading back towards 97.49 and was lastly seen at 97.98.

USDJPY

Eyes today would be on U.S budget talks, while decision deadline to take further measures to avoid hitting Debt Ceiling looming on Oct.17. Back to today’s news European PMIs fill the European session followed by US ISM Manufacturing PMI just before US open.