AUD Buoyant In Quiet Trade, Yen Resumes Southbound Trajectory

The Australian dollar managed to find moderate bids against major counterparts, but lagged behind the Kiwi. Yesterday’s retail sales had minimal effect on the Aussie, with mild weakness quickly overcome through the course of trade. Retail sales fell a seasonally adjusted 0.1% in November against expectations of an increase of 0.3%. Nonetheless, the probability of a 25bps rate cut in February increased only slightly, with interbank futures showing a 41% chance of a 25bps cut, down around 37% on Tuesday.

Across the Tasman, the Batman and Robin narrative continued to play out between the Kiwi and Aussie, with the Kiwi leading a move higher against the greenback and the Aussie trailing behind. Reports of real money flows have provided an upside inflection for the NZD amid moderately better risk sentiment from the U.S., with price action making a brief appearance back to mid-December highs above $.84.

Markets will now look to Chinese data scheduled for release during the domestic session with trade balance and lending data on the docket. Exports from the region are expected to record 5-percent growth in December from 2.9% in November, while imports -- a gauge of domestic demand -- probably grew 3.5% from a flat reading a month before. The focus will remain on China on Friday with the closely watched consumer price index scheduled for release.

Local economic feedback, Wednesday, includes building approvals data for November, which are expected to climb back to growth of 3% after a 7.6% slide in October. In annual terms approvals are expected to grow 11.6%, down from 14.5%.

Throughout the local session we anticipated supportive behavior noted around $104.9 to contain losses, while the upside may be limited by offers above the $105.35 region. This implies a very narrow range for the local unit, but naturally, there is room for a deeper correction should China’s trade data show a significant deviation from estimates.

Promising Start To Earnings Lifts U.S. equities
A promising start to earnings season in the United States kept markets looking to the bright-side with Alcoa (AA) earnings released after yesterday’s close slightly better than anticipated. Market have recently recalibrated lower in anticipation of earnings season, and better than expected earnings from industry heavyweight Alcoa is seen as a positive precursor. The focus now will turn to the financial sector with Wells Fargo (WF) due to report on Friday.

Strong equity performance from both sides of the Atlantic appears to have kept the risk spectrum well-bid with the exception of the Euro, which succumbed to moderate pressure ahead of Thursday’s ECB policy decision. Nonetheless, there appears to be little conviction driving currencies in a decisive direction.
At the time of writing, the Euro is buying U.S. $1.3050 with supportive behavior noted down to the.3035 region and again at 1.35.

Yen Resumes Southbound Trajectory
After a brief period of consolidation, the Yen resumed its downward route overnight briefly touching 88-figure against the greenback. True to form, the NZD/JPY cross saw the lion’s share of the gains with the pair forging new highs not seen since September of 2008.

At the centre of the Yen’s weakness remains Prime Minister Shinzo Abe’s stimulus agenda, with the Bank of Japan expected to the adhere to a new 2% inflation target at this month’s policy meeting. Markets are also pondering the likelihood of the Bank expanding its balance sheet for the second consecutive month, which appears to be a likely scenario should it adopt new inflation targets.

At the time of writing, the pair is trading around the 73.75 mark -- slightly off earlier highs of 73.87.