FOREX UPDATE - USD

The US dollar is generally firmer against most currencies due to an improvement in consumer confidence, and is much stronger against NZD, which is down sharply thanks to comments from NZ Finance Minister Cullen. The Conference Board's consumer confidence index for September rose to 104.5 from 100.2 in August and was higher than market expectations of 103.0.

The data is potentially important as the link between a softening housing market and the broader economy is via the consumer and resilient personal spending could see the market question the consensus view of a sharp US slowdown.

Data in the near-term that is relevant to personal consumption includes personal consumption expenditure for August and Uni of Michigan consumer sentiment for September (final), both on Friday. Of course the views of Fed officials on this subject will also be important and we can look forward to speeches from Kroszner later today, Hoenig and Minehan on Thursday and Poole on Friday.

Meanwhile senators Schumer and Graham have indicated after meeting with Treasury Secretary Paulson that they are unsure whether to proceed with their bill this week.

Falling crude prices seem to be have also moderated pessimism with respect to the US outlook and in that context the OPEC President's comments that "something needs to be done" to steady the price of oil were interesting. That could potentially be bullish for oil prices if it signals a willingness by OPEC members to squeeze supply. In general any supply side driven shock to the oil markets is unambiguously negative for the USD, while a demand side shock can coincide with USD strength.

The strong consumer confidence data makes us a bit more cautious in our negative views on the USD although we should note that lower gasoline prices probably account for much of the bounce.

New home sales for August are due at 1400 GMT, while durable goods orders for August are due at 1230 GMT.