AUD Shrugs Off Weak Data; All Eyes On Bernanke

The U.S. dollar was mixed against major counterparts overnight with losses against the commodity bloc and Euro offset by gains against the Swiss franc, sterling and Yen. U.S. equities failed to exhibit and real drive to move higher with the S&P 500 finishing largely flat on the day.

Markets are waiting in anticipation of Fed Chairman Ben Bernanke to speak in an attempt to gather further insight into when the bank will begin to unwind some $85 billion in monthly asset purchases. The December meeting minutes revealed “several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013,” and Bernanke will be closely watched to gauge just how sympathetic he is to this view, or indeed overrides it entirely. Market participants will be all too happy to begin a greenback buying spree should we hear more talk of the end of QE as we know it. Nevertheless it’s clear any suggestion stimulus could be unwound earlier than anticipated will be counterproductive, implying we’re unlikely to see Bernanke make clear any intent to do so.

More EU Recession
Across the Atlantic, Industrial production in the Euro region contracted 0.3% in November, or 3.7% in annual terms, indicating a deepening period of recession in the fourth quarter. Economist’s called for a 0.2% gain, or 3.1% contraction annually. Nevertheless, moderate euro weakness was met with support over the course with markets remaining focused on some of the more positive themes floating about. The perception on the street appears to be turning the corner, with bond yields falling across the periphery and previously bailout recipients, Ireland and Portugal, close to returning to the market for funding needs.

The Euro also kept the upper hand against the Yen with price action retreating from highs of 120.13, but well-support above the 119.85 level. Since former Japanese PM Yoshihko Noda announced his intention to dissolve parliament in mid November, the pair have risen a remarkable 20%.

Across the Channel, sterling continue to suffer in the wake of Friday’s less than inspiring industrial production data, implying a more pronounced fourth quarter contraction than previously thought. An unofficial estimate of GDP by NEISR on Friday showed the economy contracting 0.3% in the fourth quarter, suggesting the economy slipped back into recession following a third-quarter post Olympics rebound, adding to the case for the Bank of England to extend their quantitative easing program beyond the current GBP375 billion. The first official growth estimates will be released on the January 25.

AUD Shrugs Off Weak Domestic Data; Bernanke In frame
The theme of resilience continued to play out for the Aussie dollar, mostly stronger against the majors with AUD/CHF leading a move higher, while notching up a fresh 4½-year high against the Yen. Yesterday’s economic data failed to put any real dent in the Aussie with softer home loan, investment lending and ANZ jobs ads providing only moderate headwinds. Nonetheless, the negative precursors appear to be lining up ahead of Thursday official jobs release which is expected to show the economy added 4,500 jobs in December.

The next key directive for the local unit will, no doubt, be any feedback from the Bernanke speech coming up at 4PM ET, with local releases such as the Westpac consumer confidence data likely to have only minimal impact. At the time of writing the local unit is buying $105.7.