Oz to me seems like a no-brainer. The Aussie dollar has been beaten down over a commodity slump and a rate decrease by the Reserve Bank of Australia in the face of the ECB’s quantitative easing program. But the real clincher has been the price action over the last few weeks. If you google Aussie currency news, and review the day to day articles, you will get an idea of what I am talking about. It’s enough to give a day-trader whiplash—Aussie dollar fades, Aussie dollar bounces, Aussie dollar beaten down, Aussie dollar rallies…

I call this a good-ole-fashioned consolidation. After almost reaching parity with the USD last summer, the Australian dollar is building a nice base here in the high seventies. Although the currency could obviously fall further against the USD if the world economy (and especially China) slumps further, I believe investors looks for good value should at least start watching the Aussie for a good entry point and maybe even start taking partial positions.
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There’s nothing that can throw cold water on irresponsible populist rhetoric than cold hard reality staring you in the face. It looks as though we are seeing this happen in Greece as we speak. Faced with imminent default, the Greek government stated over the weekend that they would pay their debts owed to the European Union.

With a conciliatory tone,the Greek Prime Minister said this, “The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.” In other words, Greek is looking to walk back some of the inflammatory comments after the election that caused Greek markets to tumble and drastically increased the market’s perception that Greece will not pay its debts.

The Greek situation is the biggest tail risk out there that could cause material volatility in currency markets. The problem is, it could go either way. If Greece swallows the red pill and refuses to abide by previously negotiated agreements, the tiny country would become the first domino in the destruction of the Eurozone as we know it today. Spain, Italy, and possibly others are watching with baited breath to see what happens as they would be right behind Greece in demanding their debts be forgiven or renegotiated. Then all bets are off and there will be unintended consequences in currency markets around the globe. The dollar will spike further.
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Well, what a week! I can’t remember seeing such sustained volatility in the markets for a long time. The over-riding theme remains the almighty dollar, currently at 6 year highs against the Loonie and 11 year highs against the Euro. Although everyone knew it was coming the sheer size of yesterday’s ECB QE announcement caused some shock and with concerns about the make-up of the next Greek government will ensure the Euro stays on the defensive for the foreseeable future. Those analysts that are calling for Euro parity with the USD could soon be proved right.

Canadian CPI came out yesterday and was none too pretty (-0.7%), clearly this was in the BoC’s thoughts regarding Wednesday’s surprise rate cut.
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Financial markets over the past year have been defined by diverging monetary policy settings with shifting rate expectations changing the dynamic of broader forex markets. Having initially traded up above the 94 US Cents mark as recently as September the Australian dollar has now lost more than 15 percent over the past four months a shift made even more notable given its been more than three years since the Australian dollar hit its all-time high of 1.10 in August 2011.

With its weakness being driven mainly by a strengthening US dollar, investors are no longer tying macro developments directly to their implications for QE. Looking ahead over the coming year an eventual tightening of policy by the US Federal Reserve during the first half is expected, a move which should ensure the upward trajectory of the US dollar is maintained.

Keeping in mind the key theme remains Greenback (US Dollar) strength; significant falls across broader commodity prices, softer growth indicators from China as well as a relatively dovish domestic outlook have also played their part.

Looking ahead over the coming 12 months, more of the same is likely with higher rates of return available offshore reducing the attractiveness of the Australian dollar, as a result heightening the risks of a further depreciation.

Michael Judge, OzForex Corporate Dealer


Michael Judge is Corporate Foreign Exchange Dealer at OzForex, a global provider of online international payment services and a key provider of Forex news.
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The Swiss National Bank gave us volatility on a historic scale last week as it rocked markets by abandoning the nearly three-year-old policy of supporting the value of the Swiss franc relative to the euro at 1.20. The Swiss franc consequently appreciated sharply across the board, distorting flows and liquidity market-wide.

While this took the market entirely by surprise, the likelihood is that the SNB’s hand would have been forced in the coming months by European Central Bank quantitative easing. The Swiss National Bank would likely not have enough ammunition to maintain euro/Swiss franc at a level of its choosing in the face of the kind of euro weakness that would inevitably result from eurozone QE.

Continued volatility anticipated

Things are unlikely to settle down too much this week either. The ECB’s meeting is the highlight this week, as the market currently expects the unveiling of a quantitative easing package in a bid to stem deflationary pressures in the eurozone.
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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 http://www.wtfnoway.com/ $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.

Posted in USD.

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 Gaitame.com 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.