News Highlights

The dollar fell sharply across the board as unfavourable housing-sector-related earnings guidance along with the decision by rating agency S&P to review credit ratings on a series of sub-prime assets put US credit markets under renewed pressure, and pushed US equity markets and yields down further.

Speaking Tuesday on inflation, Fed Chairman Bernanke steered clear of commenting on the economy or interest rates, nor did he provide any signal of a shift in focus away from core to headline inflation. Rather, Bernanke noted that "although inflation expectations seem much better anchored today than they were" in the past, "they appear to remain imperfectly anchored.” No market-moving effect was found in his speech.

The Bank of Canada hiked rates by 25bp to 4.50% Tuesday, as widely expected. While the accompanying statement left the door open for "some modest further increase," the BoC omitted the "in the near-term" reference that was included in May, suggesting a September pause. With the market pricing a good deal of tightening going into the meeting, the subsequent reaction to the hike was a reduction in tightening expectations going forward. The Canadian currency finished lower against the US dollar.

AUD/NZD With the lows hit last Tuesday at 1.0903 very fractionally above the 76.4 retrace of the entire move up from Dec 05 lows. LT 76.4 retrace holds are often seen as significant turning points. Attractive to look at longs with a stop just below 1.0900.