Throughout my years on Wall Street and to this day, one question has always bothered me. I have never got a good explanation as to why the price of crude oil and the strength of the USD move in negative correlation. I’ve heard many different arguments but none are foolproof. I’ve even read that there is no causality in the relationship, that’s it’s all in our minds.

The main argument seems to be that as most commodities, including crude, have historically been priced in dollars, if the dollar strengthens, it takes less dollars to buy a barrel of crude, and vice versa, hence the reverse correlation. This seems to make sense, but is it just the dollar that drives the relationship? Can an increase or decrease in the price of oil be the determining factor as well? Many explanations have focused on the economic impact of interest rate changes and the possible associated demand implications they would bring. But what about supply? What if, like today, the supply of oil is plentiful and growing due to geopolitical changes in the production of crude? Will this drive a stronger dollar as well? Or is it the stronger dollar that has pushed the oil price lower?
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As Australians we love to make jokes at the expense of our Trans-Tasman neighbours, but the Reserve Bank of New Zealand’s management of interest rates in the face of a rising currency is one to be admired. Notwithstanding some of the differences in our two economies, it took some nerve for New Zealand’s central bank to raise rates by 1 per cent earlier this year, despite what was a rising New Zealand dollar at the time.

On March 13, when the RBNZ increased interest rates from 2.5 per cent to 2.75 per cent, it was the first change in over two years. At the time the New Zealand dollar was trading above US86c, around 2 per cent below its all-time high. The bank then subsequently raised the official cash rate three more times to 3.5 per cent, pausing in July when the exchange rate was above US88s. For a small island nation that relies so heavily on its exports, one could call this a rather risky strategy.

It was however a necessary step in order to curb inflationary pressures stemming from a booming housing market which, combined with the introduction of new macro prudential measures, are showing some signs of working. In contrast to the RBA, the RBNZ overlooked the elevated currency and raised rates anyway.
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It’s a huge week ahead on the data front for the Australian economy. We have building approvals, GDP, retail sales and trade balance all out — can any one of these sway the Aussie dollar one way or another?

GDP is obviously particularly critical as it’s a key measure of economic growth. The market is expecting a pull-back from first quarter +1.1 per cent result to a second quarter reading of +0.4 per cent. This would bring the annualised rate down from 3.5 per cent to 3 per cent, but it is somewhat of a lagging indicator.

The beauty of this week’s releases is that we get a broad reading on the domestic economy, with data providing some insight across a number of fronts. Building approvals are important for construction activity and general confidence in the economy; so too are retail sales and the state of the consumer.

I can’t see any of these moving the Aussie out of this range unless we get a softer-than-expected GDP reading of say 0.2 per cent or less for the quarter — in this scenario we could see a re-test of strong support between 92c and 92.50c.

RBA decision due

Will today’s Reserve Bank of Australia meeting have any impact on the currency this time? Well we know the RBA has been struggling to exert real influence over the Aussie, despite continued attempts to talk it down. It’s not the only one concerned about the local unit’s strength: BIS Shrapnel recently blamed the high dollar for sapping the strength of Australia’s economic recovery.
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As the US dollar rally starts to gather momentum, the euro is approaching its lowest levels in almost a year.

Divergence between the FOMC and ECB interest rate outlooks has been the main driver behind the move that has seen the euro fall 6 per cent since early May. The wedge between the two is only getting wider, with comments from both US Federal Reserve Bank chair Janet Yellen and European Central Bank president Mario Draghi dragging the euro lower over the weekend.

Change of tone in the US

Most of the focus from the Jackson Hole symposium over the weekend has been on remarks made by Janet Yellen. Her comments on the North American economy appear more neutral than hawkish as some have suggested.

They are, however, less dovish as the market has come to expect, and it was a reference to interest rate hikes potentially coming “sooner than market participants currently expect” that sparked a flurry of demand for the greenback. Although the timing on US interest rates is unclear, Yellen’s tone is to be expected, especially from a central bank edging very slowly towards monetary policy tightening.

Economic data takes centre stage

Looking beyond the headlines, it is clear there are still some considerable risks ahead for the US economy. The Fed is looking at much more than just the unemployment rate for a reading on the employment market.
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AUD/USD Fundamental Outlook
AUD/USD reversed direction in July, dropping -1.4% for the month overall. The decline in the rate was in part due to speculation of tightening by the Federal Reserve, continued dovish RBA monetary policy and mixed economic data from both countries. Australian economic numbers were mostly better than expected or on target in July, with the notable exceptions of Building Approvals, Retail Sales and the Trade Balance, all printing lower than the analyst consensus. In addition, the Australian Unemployment Rate rose a notch to 6% from 5.9%.

Traders will be looking to the RBA’s Monetary Policy Meeting Minutes on the 19th and the FOMC Meeting Minutes on the 20th for a better indication on interest rates and the direction of the exchange rate. Due to continued risk appetite favouring the Greenback, the outlook for the rate is neutral in the near term, lower in the medium term and higher in the long term.

AUD/USD Technical Chart Outlook

After AUD/USD peaked at the 0.9461 level in early April, the rate has since been range trading between that high point and the 0.9202 low of May 1st. Early July saw the rate decline within this range to 0.9378 before then rallying to 0.9474 by the 23rd. The rate subsequently sold off to call as far as the 0.9275 level by July 31st.

Overall, AUD/USD’s medium term outlook gives a neutral to mildly bearish appearance while trading between its 61.8% and 50% Fibonacci retracement levels at 0.9271 and 0.9573 respectively.
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We first heard rumblings of discontent from leaders of emerging market economies around the middle of last year when it looked as though the US was about to commence tapering quantitative easing. These rumblings are likely to get a whole lot louder this time around though, as the impact of US policy starts to bite these economies hard.

The possibility of a Global Emerging Currency (GEC) crisis has grown over the last week with emerging market currencies around the globe such as the Argentine Peso (-5%), South African Rand (-3.6%) and the Indian Rupee (-2.2%) sold heavily in the last week alone. If it continues, as I think it may, then undoubtedly the Australian economy and the Aussie dollar will also be affected.

What’s different this time around?

What strikes me about the recent price action is that unlike previous emerging currency crises, think Latin America in the ‘80s or Asian Currencies during the late ‘90s, the selling does not appear to be geographically specific. This is not just an issue for South America or some parts of Asia, as we have also seen currencies in Europe like the Russian Rouble (-2.6%) and Turkish Lira (-4%) weaken.

This time around the catalyst is coming from one global external source and as such it has the ability to reach all four corners of the globe.
It’s not all down to US QE tapering though. There are some country specific economic factors (e.g. widening deficits or political uncertainty) contributing to the performance of each economy but the markets seem to be driven more by fear at the moment.
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We came across an article in The Australian Financial Review today on OzForex with an interesting experiment of splitting a $200K AUD->USD transfer into two, with half sent via OzForex and the other half by one of the ‘big four’ Australian banks on the same day to compare what arrives at the other end.

The results are illuminating….!

If you have ever converted currencies or transferred money overseas, you may have been shocked to discover how much you were charged by your friendly bank to move your money.

Recently, a friend was preparing to transfer $200K overseas. I asked him if he would split the transaction into two lots, in order to try OzForex.

After signing up to their online platform, he transferred $100K through one of Australia’s big four banks and the other $100K through OzForex.
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A visualisation of U.S debt $114,500,000,000,000. – US unfunded liabilities

This makes for very scary viewing!

To the right you can see the pillar of cold hard $100 bills that dwarfs the WTC & Empire State Building – both at one point world’s tallest buildings. If you look carefully you can see the Statue of Liberty.

The 114.5 Trillion dollar super-skyscraper is the amount of money the U.S. Government knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program, Social Security, Military and civil servant pensions. It is the money USA knows it will not have to pay all its bills.

If you live in USA this is also your personal credit card bill; you are responsible along with everyone else to pay this back. The citizens of USA created the U.S. Government to serve them, this is what the U.S. Government has done while serving The People.

The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population.

Note: On the above 114.5T image the size of the base of the money pile is half a trillion, not 1T as on 15T image.

The height is double. This was done to reflect the base of Empire State and WTC more closely.

USD/CAD Daily Fundamental Analysis
The USD/CAD pair extended its drop on Wednesday, as the U.S. dollar lost momentum against major currencies after the Federal Reserve Bank’s Chairman, Ben S. Bernanke, signaled in his semi-annual testimony before the House of Representatives that the Fed is ready to undertake a third round of quantitative easing (QE3) if economic conditions remain weak in the United States, which fueled optimism in equity markets and led investors to target higher yielding assets, which weighed down on the USD/CAD pair.

The weakness of the USD prompted crude oil prices to rise, and crude oil prices were further supported by the bigger than expected drop in crude oil inventories as shown by the EIA report, which provided the CAD with strong momentum to rise, and accordingly, pushing the USD/CAD pair to the downside.

The pair’s outlook could change to the downside over the coming period, especially since markets will be stressing the possibilities of QE3, and that should put downside pressure on the USD and accordingly push the USD/CAD pair further to the downside. Nonetheless, we still believe that the European debt crisis could still weigh down on confidence, especially if new developments emerge, and that could lead the pair to rise back.

Thursday July 14:

It will be a busy day for the U.S. economy with heavy data due for release at 12:30 GMT. The start will be with the Producer Price Index for June which is expected with 0.2% drop reversing the same earlier gain and rise 7.4% on the year; Core PPI is expected steady in June at 0.2% while to rise slightly on the year to 2.2% from 2.1%.

At the same time, the June retail sales are expected also with weakness, where sales less autos are expected with 0.1% rise following 0.3% and excluding auto and gas with 0.4% gain following 0.3%.

The weekly jobless claims are also to be released at the same time after the improvement in the claims reported the previous week when they eased to 418 thousand.

Business inventories report is due at 14:00 GMT for May and expected at 0.6% following 0.8%; it is a very minor report and does not affect the market.

At 14:00 GMT, the Fed’s Chairman Ben Bernanke will provide his semi-annual testimony before the Senates, although Bernanke is expected to give the same testimony he gave to the House of Representatives on Wednesday.

AUD/NZD Daily Fundamental Analysis
The AUD/NZD pair traded near its lowest level in eight months, after the New Zealand dollar recorded a new all time high. The Australian dollar is still surfing against greenback, opening the way for Kiwi to control the pair’s movement.

The better than expected GDP during the first quarter for the New Zealand economy supported Kiwi, and prevent it from declining against greenback and other currencies, as the market sentiment returned to focus on the low yielding currencies.

The cheerful outlook for the New Zealand economy helped Kiwi to dominate the AUD/NZD pair’s movement during the last period, as the Reserve bank of Australia is still dovish which reduced demand for the Australian dollar.

Both countries won’t release any fundamentals on Friday leaving the movement on the back of the prevailing sentiment and affected by their performance mainly versus the dollar.

AUD/USD Daily Fundamental Analysis
The AUD/USD pair dropped early Thursday from its highest level in two weeks, as the greenback returned to climb against its major counterparts as a safe haven. On the other hand, the Aussie lost its momentum after the Australian confidence collapsed to its lowest level since 2009.

The US dollar gained against the high yielding currencies, after Moody’s Investors Service warned it may downgrade the US rating. Investors’ confidence faded due to the gloomy outlook for the U.S. economy, pushing them to abandon the risky assets and shift to the dollar once again.

The U.S. economy is to release the consumer price index for June at 12:30 GMT, which is expected to drop by 0.1% following the previous rise of 0.2%. The annual consumer price index for June is expected to come at 3.6% in line with the previous.

At 12:30 GMT, the U.S. will release the Empire manufacturing survey for July, and the expectations refer to 4.0 from the previous – 7.79.

The industrial production for June is due at 13:15 GMT, where the previous reading was 0.1% and expected to come at 0.4%. As for the capacity utilization for June; it’s expected to come at 77.0% from the previous 76.7%.

The U.S. economy will also release the University of Michigan Survey of consumer confidence for July, where the preliminary reading is expected to come at 72.5 from the previous 71.5.

NZD/USD Daily Fundamental Analysis
The New Zealand currency succeed to compensate its losses against the US dollar, when it recorded a new multi decade high versus the greenback as the New Zealand economic growth expanded in the first quarter more than double expectations, where the cheerful first quarter for the New Zealand was strongly supportive for the nation’s currency.

Moreover, business confidence rebounded in the second quarter from a two-year low in the first three months of the year, increasing the investors’ confidence in the New Zealand economy amid the European debt crisis and the sluggish US economy.

AUSTRALIAN DOLLAR – The Pound Australian Dollar exchange rate (GBP/AUD) is 1.5260

The Australian Dollar has taken large strides forward against the other majors on the day, largely thanks to a much better-than-anticipated US Non-Farm Payrolls figure, which was released earlier this afternoon. The job creation figure showed that economic conditions are improving quickly in the world’s largest economy, causing an increase in global appetite for risk. NEAR-TERM OUTLOOK – POSITIVE.


The Pound continued its mini-revival during today’s session following higher than expected Producer Price Index data. The figures added to speculation that a UK interest rate hike may not be as far off as had been previously anticipated. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.

US DOLLAR – The Pound Dollar exchange rate (GBP/USD) is 1.6420

This afternoon’s Non-Farm Payrolls figure showed that 244,000 new jobs were created in the States last month versus expectations of 185,000. This has had the dual effect of bucking the recent dip in risk aversion, which should lead to Dollar weakness, whilst at the same time providing increased confidence about economic fundamentals in the States. NEAR-TERM OUTLOOK – NEUTRAL.

EURO – The Pound Euro exchange rate (GBP/EUR) is 1.1330

The Euro gave up a little more ground against both the Pound and the US Dollar today as the markets continued to digest ECB President Jean Claude Trichet’s comments from his press conference of yesterday afternoon. Trichet stated that a weaker US Dollar was desirable to aid the global recovery, leading many analysts to conclude that he will help achieve this goal by actively weakening the Euro. NEAR-TERM OUTLOOK – NEUTRAL TO NEGATIVE.

NEW ZEALAND DOLLAR – The Pound New Zealand Dollar exchange rate (GBP/NZD) is 2.0662

The New Zealand Dollar has moved in step with the Australian Dollar again today as global risk sentiment picked up. Monday sees the release of key NZ Housing Sector Data which will provide further direction for the remainder of the week. NEAR-TERM OUTLOOK – NEUTRAL.

CANADIAN DOLLAR – The Pound Canadian Dollar exchange rate (GBP/CAD) is 1.5777

The Canadian Dollar re-traced some of the ground it has lost during recent sessions on the day thanks to significantly better than expected Canadian employment data. The CAD was further assisted by some highly positive job creation data in the US, due to strong trading links between the two economies. With little Canadian data of note due for release next week, the CAD may continue to trend higher. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVIVE.

Australia was the only major economy to avoid going into a technical recession during the global financial crisis. It was also the first major economy to restore interest rates to a more normal level as the worst of the storm passed. Australia has significant raw material deposits and is an important exporting nation for many commodities that the rest of the world needs.

The stability of the Australian Dollar and the opportunity to gain reasonable returns on money on deposit has led to the currency becoming regarded as a safe haven. This, in turn, has driven the value of the currency higher. The currency rose to $1.0318, the highest value since the currency was allowed to float freely 29 years ago. Increased demand for Australian commodities in China and India has helped to buoy the currency.

Rising Above Nature

Natural disasters in neighbouring New Zealand and in Japan, together with the most devastating flooding in Australian history had helped to dampen market sentiment, but there seems to be a new optimism that Australia will be able to handle these problems in her stride. Another strand of logic suggests that the Australian reconstruction of flood-hit regions will lead to a further strengthening of the Aussie Dollar as reinsurers who underwrote the Australian insurance industry need to buy the currency in order to meet payments to claimants – similar logic was applied to the situation in Japan where the Yen soared (briefly) after the disaster there.

Australian interest is under control, but it is clear that the Australian Reserve Bank is keeping an eye on it and will use rate increases as a tool to hold it in check. All in all, the outlook for Australia is looking strong right now – of course, a high Australian Dollar may harm the nation’s exports.

PRIME Minister Julia Gillard says imbalances in the world economy must be tackled by governments embracing floating exchange rates and there is still much talking to be done to keep the Group of 20 nations unified on the issue.

The world’s leading 20 economies, known as the G20, struggled in its most recent meeting to meet consensus on how best to counter imbalances in world growth, and highlighted exchange-rate reform as a key priority.

The US especially has been critical of China’s controlled exchange rate, saying the yuan is being kept undervalued to the cost of the world’s economy.

Ms Gillard, who will meet US President Barack Obama, US Treasury Secretary Tim Geithner and Federal Reserve chairman Ben Bernanke in the US next week, gave her strong support for the US position on the yuan and made clear countries must allow their currencies to float freely.

“We are looking at this currency wars question,” Ms Gillard told The Wall Street Journal and Dow Jones Newswires in an interview.

“The G20 needed to deal with this at the last meeting.

“We believe it’s important that currencies do move to floating regimes, we understand that that takes time but in order for us to have sustained and balanced growth in the world economy we do need to deal with currency questions.”

But reaching and sustaining a consensus will not be easy, Ms Gillard said.

“There is a lot of work to do and a lot of discussions to be had between nations as we build the strength of the global economy and balance sustained growth,” Ms Gillard said.

The Australian prime minister used as an example her own country’s exchange rate, saying letting it trade freely is the right policy even though exporters may be hurt.

The high-yielding Australian dollar reached parity against the US dollar in October for the first time since floating in 1983. The pair traded a post-float record high of $US1.025 in December.

“We have a floating currency and we believe a market treatment system is the right approach,” Ms Gillard said. She highlighted manufacturing, tourism and international education as hurting from the exchange rate.

“Our dollar is reflecting market movements, it reflects the world’s judgement on our currency as a resources currency and our economy having emerged from the global financial crisis strong,” Ms Gillard said.

“If you have a floating dollar it comes with some disciplines, and one of the discipline is it does have some impact on other sectors,” she said.

Outlining expectations for strong domestic growth this year, Ms Gillard said the Asia-Pacific region is the world’s new powerhouse.

“This is the region the world will see dynamic growth in this century, China’s rise obviously is something the world is responding to. We see that as having opportunity for China to be on the global stage in a rules-based system.”

On the topic of consolidation amongst global bourses, Ms Gillard declined to comment on her views on the proposed takeover of ASX Ltd by Singapore Exchange Ltd.

“I want to see Australia continue to be a financial centre for our region. Sydney has played that role and I obviously want it to continue to play that role,” she said.

Asked on the timeline for when the merger, which needs government approval, may win support from politicians, Ms Gillard was noncommittal but hinted at a longer process.

“It is still at the very early stages in terms of the discussions between Singapore and our own exchange. There is some way to go in all of those discussions,” she said.

The Australian dollar climbed further above parity with its US counterpart, boosted by firmer commodity prices and an up day on the local share market.

At the local close, the dollar was trading at 101.16 US cents, up from 100.32 cents on Tuesday.

Nomura Australia chief economist Stephen Roberts said the local unit rose in line with commodity prices and the local share market.

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‘‘It’s been pretty firm most of the session,’’ he said. ‘‘The Aussie equity market and commodity prices have been strong today.’’

The Australian sharemarket ended four days of losses, with the benchmark S&P/ASX200 finishing 0.9 per cent higher at 4796.5 points, while the broader All Ordinaries index rose 0.95 per cent at 4897.9 points.

Mr Roberts said the positive mood was boosted by strong commodity prices during Tuesday’s offshore trade when copper hit an all-time high of $US9,810 tonne on the London Metal Exchange.

Mr Roberts said there was room for the positive mood to continue into Wednesday night offshore with the local unit maintaining its gains. The ADP employment report for January is due during the offshore session in the US overnight.

The private sector report is considered important because it is used to predict the outcome of the US Department of Labor non-farm payrolls report, the official measure of employment.

The Labor Department report is expected to be published on Friday night.

Australia’s dollar traded near its highest level in a month against the U.S. currency as stocks and commodity prices rose amid signs the global economy is picking up, increasing demand for higher-yielding assets.

The so-called Aussie gained for a third day against the yen before data which economists said will show U.S. companies added jobs for a 12th consecutive month and European producer prices increased in December. New Zealand’s dollar, known as the kiwi, was close to the highest level in 10 weeks as whole milk powder prices rose to an eight-month high and before data forecast to show employment increased in the fourth quarter from a year earlier.

“There’s a risk-on mood spreading across the markets on the back of the improving global economy,” said Takuya Kawabata, a researcher in Tokyo at Research Institute Ltd., a unit of Japan’s largest foreign-exchange margin company. “The Aussie and kiwi are supported by the higher stock and commodity prices.”

Australia’s dollar traded at $1.0117 as of 4:23 p.m. in Sydney from $1.0111 in New York yesterday, when it touched $1.0149, the highest level since Jan. 4. The currency bought 82.47 yen from 82.26 yen.

New Zealand’s dollar fetched 78.08 U.S. cents from 78.14 cents yesterday, when it reached 78.26, the strongest since Nov. 22. It was at 63.65 yen from 63.57 yen.

U.S., European Data

Companies in the U.S. added 140,000 jobs in January after a 297,000 rise in December, according to the median estimate of economists in a Bloomberg News survey before ADP Employer Services reports the data today.

Europe’s producer prices rose 5.2 percent in December from a year earlier, economists surveyed by Bloomberg News said before the European Union’s statistics office data today. That’s the fastest pace since October 2008. Prices advanced 0.7 percent from the previous month, according the survey’s median estimate.

The MSCI Asia Pacific Index of regional shares climbed 1.4 percent today while the Standard & Poor’s 500 Index of stocks advanced 1.7 percent yesterday and the Thomson Reuters/Jefferies CRB Commodity Price Index rose 0.2 percent.

The New Zealand dollar gained for a second day versus the yen before data that may show employment increased by 2 percent in the fourth quarter from a year earlier, according to economists surveyed by Bloomberg News. The statistics New Zealand figures are due tomorrow.

Commodity Prices

Demand for the kiwi was also bolstered as Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole milk powder prices gained 7.6 percent from two weeks earlier, reaching the highest since June 1, according to auction results published today. A broader index of 17 export commodities rose for a fifth straight month in January to a record, ANZ National Bank Ltd. said yesterday.

“Rising commodity prices certainly portend a strong fundamental support for the New Zealand dollar,” said Mike Jones, currency strategist at Bank of New Zealand. “That’s something we expect to support a generally rising trend to the middle of this year.”

Benchmark interest rates are 4.75 percent in Australia and 3 percent in New Zealand, compared to as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The dollar fell toward a two-month low against the euro before Federal Reserve policy makers begin a two-day meeting amid speculation accelerating U.S. growth won’t be enough to prompt a tightening of monetary policy.

The greenback weakened versus 12 of its 16 major peers before data this week forecast to show home prices dropped by the most since December 2009 while the U.S. economic expansion quickened. Australia’s currency slid after a government report showed consumer prices rose at the slowest pace in almost two years. The yen was near a two-month low against the euro as Asian stocks advanced amid signs the global recovery is building momentum, boosting demand for higher-yielding assets.

“The Fed still has concerns about high unemployment, very subdued core inflation and a generally fragile outlook,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “A reiteration of that may provide some headwinds for the U.S. dollar and U.S. bond yields.”

The dollar declined to $1.3661 versus the euro at 12:47 p.m. in Tokyo from $1.3638 in New York yesterday, when it touched $1.3686, the weakest level since Nov. 22. It traded at 82.45 yen from 82.53 yen. The U.S. currency fell to 0.9479 Swiss francs from 0.9491 after earlier reaching 0.9471, the least since Jan. 5. The euro was at 112.63 yen from 112.54 yesterday, when it rose to 112.91, the most since Nov. 23.

Fed Chairman Ben S. Bernanke will keep the benchmark interest rate unchanged at zero to 0.25 percent at the central bank’s meeting on Jan. 25-26, according to economists in a Bloomberg News survey. Unemployment, at 9.4 percent in December, is well above the 5 percent to 6 percent level that most Federal Open Market Committee members peg as their long-term aim.

U.S. Data

Housing in the U.S. also continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through November fell 1.6 percent from a year earlier, the biggest decline since December 2009, according to a Bloomberg News survey before the S&P/Case-Shiller index is released today.

U.S. gross domestic product rose at a 3.5 percent annual pace in the fourth quarter, up from a 2.6 percent rate in the previous three months, according to the median estimate of economists surveyed by Bloomberg News before a Jan. 28 report.

“As the market remains wary that the U.S. dollar can transition to a growth currency, the fourth quarter GDP print will have to come in on or above expectations to support the U.S. dollar,” Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG wrote in a note to clients.

Bond Sale

The euro rose against a majority of its most-traded peers before a European Financial Stability Facility bond auction that may garner increased demand.

The Luxembourg-based EFSF is selling as much as 5 billion euros ($6.8 billion) of five-year notes backed by guarantees from euro members, funds that will help pay for Ireland’s bailout. A successful sale of EFSF debt may prompt renewed calls for common European securities. While backed by most of the same nations that would be involved in a euro bond, the EFSF’s securities have achieved AAA ratings through credit enhancements designed to boost their appeal and keep down yields.

“We expect demand to be strong, as there is a shortage of AAA paper in Europe,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York wrote in a note to clients. The euro’s advance yesterday “will embolden the short-term speculators and suggest scope for another two cent advance,” he wrote.

The MSCI Asia Pacific Index climbed 1 percent before reports today that may show French spending rose a second month and Spanish producer-price inflation accelerated. A composite index based on a survey of euro-area purchasing managers in the manufacturing and services industries rose to 56.3 in January, the highest in six months, from 55.5 in December, Markit Economics said yesterday in an initial estimate.

‘Better’ European Data

“The data certainly looks to be doing much better not only in the U.S., but also in Europe,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “At the moment, risk appetite is ‘on’ and the yen typically doesn’t perform too well. If you look at the price action over the past week, the market is preferring the euro versus the greenback.”

Consumer spending in France gained 0.3 percent in December from November, when it rose 2.8 percent, a Bloomberg News survey of economists showed before the national statistics office Insee report. Prices of goods leaving Spain’s factories, mines and refineries climbed 5.0 percent in December from a year earlier, compared with 4.4 percent in November, a separate survey showed before the National Statistics Institute report.

The Australian dollar declined for the first time in three days after government figures showed consumer prices rose 0.4 percent in the fourth quarter, compared to the median estimate for a 0.7 percent gain. The so-called Aussie fell 0.3 percent to 99.49 U.S. cents and 82.03 yen.

The euro traded near a two-month high against the dollar and the yen before a report that economists said will show new industrial orders in the 17-nation region quickened in November.

The single currency was close to the strongest in two weeks versus the pound after European Central Bank President Jean- Claude Trichet said that policy makers will “closely” monitor energy and commodity prices, signaling possible higher interest rates. Australia’s dollar fell toward a seven-week low against the greenback after a government report showed producer prices rose the least in a year.

“Eurozone rates are higher versus the U.S. and the countries that were a cause for concern have rallied strongly,” said Tony Allen, global head of currency trading in Sydney at Australia & New Zealand Banking Group Ltd., Australia’s third- largest lender by market capitalization. “We’re in a bull move for euro.”

The euro traded at $1.3605 as of 1:35 p.m. in Tokyo from $1.3621 last week in New York, after advancing to $1.3647 earlier today, the strongest since Nov. 22. The single currency was at 112.59 yen from 112.48 yen, after climbing to 112.71, the highest since Nov. 23. The euro bought 85.22 British pence from 85.13 pence, after rising to 85.31, the most since Jan. 5. The dollar was at 82.77 yen from 82.57.

Industrial orders in the euro area rose 1.9 percent from the prior month, when they gained 1.4 percent, according to a Bloomberg survey before the report today. A composite index based on a survey of euro-area purchasing managers advanced to 55.6 in January from 55.5 in December, a separate survey showed before today’s data from Markit Economics.

Trichet’s Rhetoric

Trichet this month toughened his rhetoric on inflation after it accelerated to 2.2 percent in December, breaching the ECB’s 2 percent limit for the first time in more than two years. The change in tone prompted some economists to bring forward forecasts for rate increases and helped drive the euro more than five cents higher against the dollar since Jan. 12.

“We are profoundly attached to our mandate,” Trichet said in a Wall Street Journal interview in response to a question on whether his Jan. 13 comments were over-interpreted. “Clearly, in particular on the side of energy and commodity prices we have a number of developments that we will continue to monitor closely.”

Aussie Falls

Australia’s currency fell against most of its major counterparts after the statistics bureau said producer prices climbed less than economists forecast.

Prices paid to producers rose 0.1 percent in the fourth quarter, compared with the median forecast for a 0.5 percent gain. The statistics bureau will publish its consumer price index tomorrow. Today’s figures cover a period before floods devastated parts of northeastern Australia.

“A similar low-inflation picture is likely to get repeated in consumer prices,” said Adrian Foster, Hong Kong-based head of financial-market research for Asia at Rabobank Groep NV. “I’d look for a sell-off in the Aussie toward the 97.60 cent area.”

Australia’s currency dropped 0.2 percent to 98.81 U.S. cents, after declining to 98.04 cents on Jan. 12, the lowest level since Dec. 9.

U.K. Growth

The pound fell against the dollar, paring this month’s gain, before a government report that economists said will show U.K. economic growth slowed last quarter.

Sterling has strengthened 2.2 percent this month after inflation moved further above the government’s 3 percent limit, spurring bets the Bank of England will boost rates sooner than previously thought.

Gross domestic product rose 0.5 percent, compared with a 0.7 percent increase in the third quarter, according to economists in a Bloomberg survey before tomorrow’s report.

“The markets are a bit premature in expecting the Bank of England to hike rates anytime in the next few months,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole CIB, said in an interview with Bloomberg Television. “That might just see a little more downside risk to sterling.”

U.S. Dollar Trading (USD) strong data and weak commodities sent the Dollar higher across the board. Weekly Jobless Claims dropped to 404k vs. 445k previously. December Home Sales at 5.28m vs. 4.88m previously. In US stocks, DJIA -2 points closing at 11822, S&P -1 points closing at 1280 and NASDAQ -21 points closing at 2704.

The Euro (EUR) held strength better than most with the market bounded between 1.34-3500. News that the Irish PM had called a snap election was overlooked as was a moody downgrade warning of Portugal. EUR/USD traded with a low of 1.3395 and a high of 1.3525 before closing at 1.3460. Looking ahead, January IFO Business Climate forecast at 109.9 vs. 109.9 previously.

The Japanese Yen (JPY) bounced aggressively on strong US jobs and housing data to test Y83 in a widely noticed sigh on strength. Y83.50 has capped the major so far this year and will need to be broken to excite the bulls. Overall the USDJPY traded with a low of 82.04 and a high of 83.15 before closing the day around 82.90 in the New York session.

The Sterling (GBP) was sold back on weak stock markets with UK economic data also weighing. January CBI orders slipped to -16 vs. -3 forecast. Overall the GBP/USD traded with a low of 1.5835 and a high of 1.6013 before closing the day at 1.5910 in the New York session. Looking ahead, December Retail Sales are forecast at -0.3% vs. 0.3%.

The Australian Dollar (AUD) was crushed in the US session as copper fell over 3% and the USD surged on strong data. The tone and mood towards the Aussie has changed markedly with the market finding itself caught long AUD against many pairs. Overall the AUD/USD traded with a low of 0.9830 and a high of 0.9982 before closing the US session at 0.9850.

Oil & Gold (XAU) was crushed lower by the strong USD and EURO. Overall trading with a low of USD$1342 and high of USD $1372 before ending the New York session at USD$1347 an ounce. Oil led the commodity sell off down $2 a barrel. WTI Oil Closed -$1.90 at $89.60 a barrel.

The US dollar continued its downward trend against most major currencies after data showed rising gas prices and meager consumer sentiment figures. Consumer’s view of the US economy fell 2.4%, after average gasoline prices rose above $3.00 a gallon. The Michigan sentiment index reported consumer sentiment fell to 72.2 from 74.5 in December and a survey of current economic conditions dropped to 79.8 from 85.3 in the prior month.

Despite the negative effect of higher gasoline prices, the survey reported consumer expectations rose to 68.2 from 67.5 in December, while the 12-month economic outlook index rose to 87, which was its highest since 2009. Additionally, the Commerce Department reported retail sales climbed 0.6% in December and 6.6% over the entire year, the largest 12-month gain since 1999.

The euro rallied further against the USD after comments from European Central Bank chief Jean-Claude Trichet raised expectations of an interest rate hike. The euro bank-to-bank lending rate jumped and the euro hit a one-month high of $1.3458 EUR/USD after Trichet warned about inflation in a recent interview. However, many analysts say that the euro may gain resistance above $1.35 levels given the nervousness over the large amount of debt supply from weaker Eurozone economies this year.

The British pound gained further against the USD supported by anticipation that UK interest rates may also rise in the coming months. The Bank of England kept rates unchanged yesterday, but rising inflation has led to speculation that rates may rise as soon as May of this year. The Office for National Statistics reported output prices rose 4.2% in December, surpassing expectations of a 3.9% rise. Bolstered prices were due to rising oil and food prices which increased pressure on the BOE to contain consumer price inflation, which is forecasted to rise towards 4% in the coming months

The Japanese yen traded slightly higher against the USD after a dip in US consumer sentiment. Domestically, Japanese wholesale prices reported the third straight month of price increase, which was 1.2% in December, higher than the median forecast of a 1.0% rise. Analysts say the rise is unlikely to lift Japan out of their current deflation as the weak domestic demand makes it difficult for companies to pass increased material costs onto consumers.

The Canadian dollar initially weakened against the US dollar, but managed to recover some ground as oil held in at $90 a barrel. Analysts will look towards Bank of Canada’s interest rate decision next Tuesday. Focus on the tone of central bank chief, Mark Carney will be closely watched for further direction in the USD/CAD currency pair.

The Australian and New Zealand dollars fell against the USD after China’s central bank raised lenders’ reserve requirements for the fourth time in two months. As China’s inflation is expected to stay elevated in the coming months, local bank reserve requirements rose by 50 basis points which brought fears of a slowdown in the Chinese economy. The Aussie is sensitive to China’s growth expectations as trade links remain strong between the two countries.

Australian Dollar: The Australian Dollar declined from 0.9960 to 0.9920 against the US Dollar yesterday after the release locally of the Unemployment and Participation Rate. The release indicted that the Unemployment Rate fell from 5.2% to 5.0% and that the number of jobs created to the economy totalled 2,300 compared with expectations of 25,200. This result along with the effects to economic growth from the floods in Queensland may have on the local economy have put any potential interest rate raise by the RBA on hold for the next several months. Offshore the Australian Dollar traded between 0.9940 and 1.0018 as traders made the return to riskier assets following some weaker than expected US data.

We expect a range today of 0.9900 to 1.000


New Zealand Dollar: The New Zealand Dollar held up above the 0.7600 cents mark yesterday as a return by the markets to high yielders continued. During the Asian session the Kiwi traded between 0.7625 and 0.7700 as the market once again sold the big dollar down. Sparking the rally in the Kiwi was a report out of the US that showed Unemployment Claims for the week rose 35,000 to 445,000 and again highlights the difficulties facing the US economy in the short to medium term. With no data due out of the land of the long white cloud the dollar will take direction from offshore events and happenings.

We expect a range today of 0.7650 to 0.7750


New Zealand Dollar: The New Zealand Dollar held up above the 0.7600 cents mark yesterday as a return by the markets to high yielders continued. During the Asian session the Kiwi traded between 0.7625 and 0.7700 as the market once again sold the big dollar down. Sparking the rally in the Kiwi was a report out of the US that showed Unemployment Claims for the week rose 35,000 to 445,000 and again highlights the difficulties facing the US economy in the short to medium term. With no data due out of the land of the long white cloud the dollar will take direction from offshore events and happenings.

We expect a range today of 0.7650 to 0.7750


Majors: The European Central Bank left the official cash rate at 1% last night when it held its first meeting of 2011. In the accompanying press conference it alluded to the fact that the ECB would not hesitate to raise interest rates in the Euro Land in order to fight inflation. The EURO rallied hard against the Greenback after the announcement with the EURO charging through the 1.33 mark to eventually hit an intraday high of 1.3377. Adding to the US Dollars recent run of poor form was the release Stateside of Unemployment Claims which increased 35,000 from 410,000 to 445,000, the biggest one week jump in about six months. Despite a positive reading in the US Trade Balance and PPI, traders favoured the GBP and EURO with risk potentially back on the table.

The United States delivered a huge gift this week to the Australian tourism industry – the Oprah industry. Sadly, all this pro-Australian enthusiasm is worth little when the Aussie dollar shows no sign of moving too far below parity with the US dollar.

Oprah’s Ultimate Australia Adventure is an extraordinary opportunity to showcase to the world all the tourist highlights we have on offer.

Make no mistake: the 40 million Americans who will see the Great Barrier Reef, Uluru, Whitehaven Beach and Kangaroo Island thanks to Oprah is a wonderful gift to Australian tourism.

”An estimated $62 million in equivalent advertising space in Australian media and $14 million in US media has already been generated since Oprah’s visit was first announced on 14 September,” is the cry from the Minister for Tourism, Martin Ferguson. Putting the quantitative measure to the side for a moment, Ferguson goes on to describe this as plug for Australia as priceless.

In addition to the US viewers, The Oprah Winfrey Show airs in 23 of Australia’s 33 priority tourism markets. But will this translate into an increase in tourism? Sadly, the answer is no.

Australia rates consistently high in surveys of where Americans say they want to holiday, regularly registering awareness of about 90 per cent. However, less than 5 per cent go ahead and make a booking, according to research by Tourism Australia.

If one factors in the dollar at near parity, the reality is that Oprah Down Under is a wonderful bit of publicity, but for Australian airlines and hotels she probably won’t be a nice little earner.

Americans may love Australia, and many dream of coming here but, given the vast majority never venture outside their own country, the Big O is more about bragging rights than anything more meaningful for the local economy.

A far more significant factor in US-based tourism will be the tax cut extension plan agreed by the Obama administration this week. If the US tax and unemployment benefit package becomes a reality and pushes up the country’s debt, then it matters little how appealing the natural Australian treasures are, as the falling US currency against ours will make it far less attractive for Americans to travel to Australia.

The talk show host with the super-charged EQ that has made her a billionaire can change attitudes, opinions and television ratings (and she does great giveaways), but she can’t influence currency exchange rates.

There is nothing on the near-term horizon that will vastly improve the US dollar exchange rate relative to Australia’s currency.

Indeed, the US government is actively attempting to devalue its currency in order to kick-start its economic recovery – as are many other international economies.

Australia is little more than a puppet in the international devaluation race. The relative strength of the local economy, thanks also in part to the minerals boom fed by Chinese demand, is set to dictate our exchange rate for the short and even the medium term.

This week’s strength in the local currency has little to do with local conditions and everything to do with uncertainties in the US.

Having said this, using the Oprah visit to push the merits of Australia is an opportunity that should not have been missed.

10 December 2010

Charlie Lay, Joanna Tan, Radhika Rao, Gregory See


- China: Nov M2 growth remained firm at 19.5% y/y from 19.3% in Oct. M1 growth was unchanged from Oct at 22.1% y/y. As for Nov new loans growth of another robust number at CNY564bn from CNY588bn in Oct, there are few signs of a slowdown in the monetary numbers.

- Philippines: IMF raised Philippines’ GDP forecast to 5.0% from 4.5% earlier, with 2010 projection unchanged at 7%. Said was necessary for the authorities to start normalizing policy soon; important to rationalize fiscal incentives; expects deficit to fall within target this year.

- Philippines: Treasurer Tan said the govt received strong offers of > PHP 100bn for new 2035 bonds; expects demand for new 2020 bonds to touch PHP 50bn as part of peso debt swap. Swap offer ended today, pricing on 14 Dec, followed by settlement on 16 Dec.

- India: Oct Ind Prod rebounds to 10.8% y/y, above consensus and above Sep’s 4.4%; Manufacturing rose 11.3% y/y.

- India: RBI Dep Gov Chakrabarthy’s remarks that RBI could raise rates despite the pause outlook; added that monetary policy was still accommodative with inflation as a major concern and real rates in negative.

- India: Planning agency’s Ahluwalia echoed concern over inflation, with < 10% annual growth likely in FY 11.

- India: Data from the RBI showed that authorities had bought USD 450mn in Oct to limit slippage in USD/INR on hefty inflows ahead of Coal India IPO. Curiously, Thu's report also showed that the RBI had sold USD 25mn in Dec and bought USD 155mn (Mar'10), USD 110mn (Jun'10) and USD 260mn (Sep'10), with prior bulletins not reflecting these purchases.


- UK: U.K. house prices increased to the highest in more than two years in November as the market showed signs of reaching a peak, research company Acadametrics Ltd. and LSL Property Services Plc said in an estimate released today.

- EU: Germany would like to discuss European Central Bank President Jean-Claude Trichet's succession at the next euro-area finance ministers meeting in January, Financial Times Deutschland reported, without saying where it got the information. - BBG

- US: The United States and Japan wrapped up seven days of joint military exercises Friday, as tensions simmered on the Korean peninsula. - CNN

- US: House Democratic leaders left a Dec. 6 White House meeting assured that President Barack Obama hadn't sealed a deal with Republicans that would betray nearly a decade of campaign promises not to extend tax cuts for the wealthy. - BBG

- Australia: Wet weather this week in eastern Australia, the fourth-largest wheat exporter, may have cut 60 percent of the crop in three states to feed quality, Australia & New Zealand Banking Group Ltd. estimated. - BBG


USD/Majors: Equities were a mixed lot, reflecting cautious market sentiments. Greenback strength held up well. China's firm Nov M2 and new loans growth added meat to the theory that inflation would exceed 4.4% and reinforced the need to come down hard on inflation. EUR traded sluggishly, while cable managed to advance higher. AUD upsides were capped, meeting heavy offers at 0.9870 on anticipation that its trading partner would tighten policy very soon. An increase in copper prices lent a supportive tone to the commodity heavy Au ssie.

JPY Crosses: JPY crosses were mixed as firm China Nov data had little impact on currency levels. Investors had already priced in their expectations for a rate hike from PboC this weekend. USD/JPY slid below its day's trading range, EUR/JPY tumbled as the risk-driven Euro fell against the sheltering Yen. GBP/JPY and AUD/JPY managed to hold on to their robust levels, though overly bullish moves are capped.

USD/Asians: Fleeting EUR rally provided saw USD/AXJ bears some breathing space in early Europe, though proved short-lived on weak French data into late Far East Asia. USD/regionals back up into traded range by close, with weekend's China CPI data and likelihood of rate/RRR hike keeping risk-appetite under wraps. Equity markets had an unimpressive end to the week, with Friday's price action of mixed hues - JKSE slumped >1.0% while SENSEX made up lost ground on bargain-hunters up 1.3% at last look.

NEW YORK, Nov 17 (Reuters) – The euro edged higher against the dollar on Wednesday as tepid U.S. inflation data supported the Federal Reserve’s quantitative easing program, which is a signal for investors to sell the greenback again.

Talk that Ireland may soon receive help to fix its banking and sovereign debt problems also lifted the euro, although the currency’s upside could be limited because of concerns problems could spread to other euro zone economies.


The euro earlier slid to a low of $1.3460 on trading platform EBS, not far from a seven-week trough hit on Tuesday at $1.3446. Key support lies at $1.3436, the 50 percent retracement of the August to November rally, and a break could open the way for a drop toward the low $1.30s, traders said.

“With today’s CPI data kind of confirming that the Fed is doing the right thing on QE, the Federal Reserve is unlikely to back off,” said Greg Anderson, senior currency strategist at CitiFX in New York.

U.S. consumer prices rose less than expected in October and the increase in the year-on-year core rate was the smallest on record.

“As a result, we’ve seen yields stabilizing and it looks like they’re headed lower, which is good for risk sentiment.”

In early afternoon trading, the euro EUR= was up 0.3 percent at $1.3528. The single currency has lost about 3 percent this month as investors have cut long positions on peripheral debt worries.

The market’s focus was mainly on Ireland, whose high borrowing costs and large deficit have kindled fears of a Greek-style crisis where budget problems in one country weigh on the entire euro zone.

Nervousness grew after European clearing house LCH. Clearnet doubled its margin requirement on Irish government bonds to 30 percent of net positions, citing higher Irish yields over German benchmarks.


However, speculation that a resolution of Ireland’s problems is close helped the euro. Irish Prime Minister Brian Cowen on Wednesday said the country is currently not in a “threatening situation” and there are “sensible, precautionary discussions taking place” at the moment.

A deeply divided G20 is struggling to move beyond broad promises of economic cooperation as world leaders gather in Seoul for a two-day summit.

‘‘The negotiators are working to advance agreement over currencies from the Gyeongju accord,’’ announced by finance chiefs last month, G20 committee spokesman Kim Yoon Kyung told reporters in Seoul today.

At the same time, they have so far failed to narrow differences on either exchange rates or the commitment to avoid sustained imbalances in trade and investment flows, he said.

The rancor follows a rejection by countries from China to Germany of any move to set a target for current-account surpluses or deficits as a percentage of gross domestic product.

Narrowing differences would help quell currency tensions that risk sparking a wave of trade protectionism that might hobble the global economic recovery.

‘‘Prospects for adding to the substantive agreement reached at the G20 finance ministers’ meeting on October 23 seem to be waning,’’ Aroop Chatterjee, a currency strategist at Barclays Capital in New York, wrote in a research note.

A meeting of finance ministers and central bankers last month agreed to move toward ‘‘more market-determined exchange rate systems’’ and ‘‘reducing excessive imbalances’’ assessed against ‘‘indicative guidelines to be agreed.’’

The biggest battle inside the summit is over the US Fed’s easy money policy. The central bank’s announcement last week that it plans to buy another $US600 billion in government bonds drew sharp rebukes from many G20 members who said the United States was ignoring consequences abroad.

Mr Greenspan, the former Fed chairman, did not directly point the finger at his former central bank colleagues but said weak currency policies in both the United States and China were exacerbating global frictions.

China’s yuan, also known as the renminbi, rose 0.25 per cent on Thursday and has climbed almost 3 percent since Beijing loosened its grip on the tightly managed currency in June. Washington has welcomed the slow-but-steady appreciation, although it has said more movement is needed.

“The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage,” Mr Greenspan wrote in the Financial Times. “Something has to give in this arena of zero-consolidated current account balances.”

Euro Quickly Returning to the Top Headlines as Yields for Sovereign Debt Soar, Auctions Materialize Concern
There was economic data for euro traders to work with Tuesday; but its influence was modest. Between the final readings of German CPI data and business sentiment statistics; there was little to truly garner a sense of regional growth and inflation. Far more interesting is the fiscal picture of the entire European Union. Irish bond prices dropped an 11th day as EU Commissioner Rehn said the country couldn’t remain a low tax economy – another blow to its ability to attract capital. In Greece, the Finance Minister voiced concerns that budget cuts could chock growth; but he did see a successful 52-week bond auction. We’ll see if Portugal is as lucky with a 1.25 billion euro debt sale Wednesday morning.

British Pound Tempers its Response to Data as Focus turns to Wednesday’s BoE Quarterly Inflation Report
Economic data was questionable for the British pound Tuesday. The deficit improved slightly from a record low; the NIESR GDP estimate was still positive but is falling quickly and factory activity is quickly standing in as the last bastion of support with a fifth consecutive improvement. The upcoming BoE quarterly inflation report will have more influence with updated inflation and growth forecasts to guide stimulus speculation.

New Zealand Dollar Overvalued According to RBNZ Governor Bollard
Lamenting the high level of his currency and the impact it is having on the New Zealand economy, RBNZ Governor Alan Bollard suggested the kiwi was overvalued. Furthermore, in his dovish commentary, the policy official said the currency is being driven by the Fed’s stimulus pump and domestic activity and credit demand remain weak. The market will decide whether it is willing to believe these comments.

Australian Dollar Gains Weight as Investor Optimism Retreats, Consumer Confidence Tumbles
Risk appetite trends are the primary source of strength/weakness for most asset classes out there; but it is especially influential for the Australian dollar as the FX market’s favored yield currency. Adding a further unfavorable slant to the general appetite for risk, the Aussie dollar’s standing as a faultless high-yielder was diminished by a 5.3 percent drop in the Westpac consumer confidence survey. High rates have their impact.

Japanese Yen Slides against the Dollar Even as Risk Falls Back
Fundamental roles and correlations change over time. For the dollar, the appeal of a safe haven is growing more and more dubious. The same can be said of the yen. However, where the dollar is already under significant pressure; the Japanese currency is near multi-year and record highs. Is reality catching up to the low yield, deflationary and stimulus-friendly currency? With USDJPY rising as risk slides, we could be.