Commodity Currencies Weakened On US Fiscal Cliff Impasse

The dollar and yen are staying in a tight range against European majors as consolidations continue. Meanwhile, global equities are weighed down by US fiscal cliff impasse. Risk aversion pressures commodities and sends Canadian and Australian dollar lower.

Fiscal talks remained a deadlock as the year approaches its end. House of Speaker Boehner said after announcing the vote was cancelled that "the House did not take up the tax measure today because it did not have sufficient support from our members to pass." He also said that "it is up to the president to work with Senator (Harry) Reid on legislation to avert the fiscal cliff". The White House criticized that the GOP’s plan was "a major step backwards" and "pointless political stunts." Reid also stated that if no pre-Christmas deal is done the Senate will return to work on December 27.

The next BoE Governor, current BoC Governor, Carney, said that nominal GDP targeting could be a "more powerful" tool for central banks in extreme economic conditions. Carney did expressed his support for "flexible-inflation targeting framework" in Canada. Be he also noted that stronger policies are needed in times of major economic downturn. He noted that "under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses.” And, "when policy rates are stuck at the zero lower bound, there could be a more favorable case for NGDP targeting." Meanwhile, such an approach was criticized by analysts that if the underlying reason for sluggish growth is a structural problem, such monetary policies would fuel inflation or asset bubbles.

On the data front, UK Gfk consumer sentiment deteriorated to -29 in December versus expectation of -25. German Gfk consumer sentiment unexpectedly dropped to 5.6 versus consensus of 5.9. UK Q3 GDP final reading would be released today and is expected to be unchanged at 1.0% qoq while public sector net borrowing, current account will be released today.

The Canadian dollar is notably weaker today and some important economic might trigger further volatility. Canada GDP is expectation to show 0.1% mom growth in October while CPI is expected to drop to 1.0% yoy in November, Core CPI is expected to drop to 1.0% yoy too. From US, personal income and spending are expected to rise 0.3% and 0.4% in November. Headline PCE is expected to drop to 1.6% yoy in November and core PCE is expected to be unchanged at 1.6%.