Aussie dollar on one knee with Yen in demand

The market, by all accounts, seems to have turned more outright bearish on the EUR. It has returned to being bullish on the JPY after BoJ intervention reduced interests in the last few weeks. The yen is twinned with the dollar as the go-to reserve currency of choice. However, US deficit negotiations may pressure the dollar next week, briefly diverting market attention away from the Euro sovereign debt crisis.

The Aussie dollar breached its short term objective of parity, and currently sits just above, as it consolidates its intra-week loss from 1.03 and change. The high yielding currency continues to under-perform its sister growth currencies, hindered by gold performance.

Below are some other highlights of the week:

ASIA

• NZD: Real retail sales rose a larger than expected +2.2%, q/q, in Q3, while the services PMI fell -2.3pts to 50.6 in October.
• CNY: The pace of CNY appreciation has slowed following the G20 summit. US President Obama increased pressure on Chinese Premier Hu at the APEC summit on CNY reforms last weekend, resulting in higher dollar yuan fixes.
• IND: Their Wholesale Price Index inflation was +9.7%, y/y, in October, slightly above the consensus. Analysts believe this has peaked which should lead to a no RBI rate hike in December.
• JPY: Their Q3 GDP growth rose to +6%, q/q, annualized, broadly in line with the consensus forecast of +5.9%. Growth is expected to contract again in this quarter as external demand slows.
• AUD: The RBA’s November minutes meeting revealed that there was a debate on whether the policy rate should be kept unchanged. The board decided that there had clearly been “material changes” to the course of and outlook for inflation. They agreed that the downside rise to growth had increased, and, thus, a 25bp cut to a more neutral level of interest rates. Futures traders are pricing in-145bp of cuts by next June.
• IMF: Issued a warning on the vulnerabilities in the Chinese banking system.
• SGD: Their retail sales fell -0.1%, y/y, in September, much weaker than the consensus. This was driven by a -9.8%, y/y, fall in car sales. Core-retail sales were flat on the month. This may suggest that weak exports are starting to constrain domestic demand. However, probably not enough evidence for the MAS to shift its FX policy bias from appreciation to neutral.
• INR: The Indian finance minister is reportedly in talks with the RBI to increase the limits that foreign investors can invest in INR bonds. Expected to be positive for bonds and the INR.

Other links:
Week in FX: Europe Nov. 13-18
US Data Starting Its Own Trend?
ECB or the EUR to crack?