This week started off on a rather light note, with the only news on hand coming from Asia-Pacific region, leaving the greenback to falter overnight as carry trades gained steam.
â€˘ Australian Dollar: Punches through 0.8800 on election news
â€˘ New Zealand Dollar: Gains subdued as trade deficit widens
â€˘ Japanese Yen: USDJPY sticks to range while crosses follow equities higher
â€˘ Euro: Break of 1.4850 on clear economic calendar
â€˘ US Dollar: No data on hand, traders await US stock market open
This week started off on a rather light note, with the only news on hand coming from Asia-Pacific region, leaving the greenback to falter overnight as carry trades gained steam. Indeed, Fridayâ€™s US stock market gains and signs that Black Friday was a success for retailers led the Nikkei 225 Index to close 1.66 percent higher, supporting yen pairs like EUR/JPY and GBP/JPY and helping EUR/USD to punch through 1.4850 while GBP/USD rallied for a test of 2.0700.
However, it remains to be seen just how optimistic the Black Friday news actually was. According to ShopperTrak, retailers raked in more cash than last year amidst widespread promotions that included midnight openings and heavy discounting. Will this increase in spending extend beyond November into December? Moreover, given the sharp price cuts given to customers, will the increase in sales even prove to be profitable? Wall Street will not know for sure until quarterly results are issued in coming months, but traders will surely attempt to gauge retailer health on a combination of rumor, third party surveys, and consumer sentiment reports. As a result, Tuesday could prove to be a more exciting day for dollar traders, as the Conference Boardâ€™s consumer confidence survey for the month of November is expected to support more cynical retail sales predictions, as the index may drop for the fourth consecutive month to a two-year low of 91.0 in the face of record high gasoline prices and declines in the stock markets. If this is indeed the case, fed fund futures will likely continue to suggest that investors are ramping up speculation of a December rate cut by the Federal Reserve, leaving the US dollar open to further declines.
Outside of the US, the Asia-Pacific region saw a flurry of news as election results over the weekend showed that Australian Prime Minister John Howard was ousted by Kevin Rudd. With Ruddâ€™s policy priorities said to be focused on improving Australia's education system, hospitals, and infrastructure, it appears that there will be few shifts regarding fiscal or monetary policy, suggesting that the Reserve Bank of Australiaâ€™s hawkish bias may face little political pressure and is unlikely to fade anytime soon. Meanwhile, the New Zealand trade deficit unexpectedly widened in October to â€“NZ$690 million despite a jump in dairy exports as imports rocketed to a record high of NZ$411 billion on purchases of fuel and machinery. The data may be of concern to the Reserve Bank of New Zealand, as rampant domestic spending may only fuel additional inflation pressures in an economy already grappling with record high oil prices.
Written by Terri Belkas, Currency Analyst for DailyFX.com