EUR/USD, GBP/USD, AUD/USD And NZD/USD Outlook: November 20, 2012

The U.S. dollar weakened against all of its counterparts on speculation President Barack Obama and lawmakers will come to a consensus on how to handle the country’s budget in order to avert the so-called fiscal cliff. Optimism did wonders for the market as it increased risk appetite and dampened demand for refuge currencies.

Reports indicating that the E.U. is ready to unlock the bailout mechanism also boosted sentiment, especially as it’s rumored that Greece may receive the next tranche of international aid on December 5th. However, it’s not clear if the International Monetary Fund and the region’s leaders have resolved their differences on how to help Greece reduce its debt. On the data front, the National Association of U.S. Realtors stated that sales of Existing Homes increased by 2.1 percent to a seasonally adjusted 4.79 million units last month.

The Canadian dollar rallied against its U.S. peer after the International Monetary Fund suggested it may classify the Canadian and Australian dollars as reserve monetary units. The loonie advanced versus most of the majors as global stocks and commodities gained on optimism the U.S. may avert the fiscal cliff and therefore a recession as well.

The euro climbed against the U.S. dollar as reports indicated that Greece will obtain the next bailout payment in the early part of December. The region’s Finance Ministers will meet in Brussels today where they’ll discuss the payment of 44 billion euros to Greece. However, concerns over the crisis in the eurozone persisted as Germany’s central bank issued a statement saying the country’s economy is contracting as a result of the ongoing debt crisis.

The British pound rose against the U.S. dollar as risk appetite improved on optimism that U.S. President Barack Obama and key lawmakers will find a way to avert the fiscal cliff. The sterling had declined earlier as market investors look ahead to the publication of the Bank of England’s Policy Meeting Minutes.

The yen plunged against all of the majors as Kyodo News reported that the head of the Liberal Democratic Party, Shinzo Abe, will select a new governor for the Bank of Japan, which will probably be someone who supports adhering to inflation targets.

Lastly, the Australian dollar rose against most of its peers after President Obama indicated that he believes the U.S. will be able to avert the fiscal cliff, a factor that bolstered global stocks and the demand for high-yield assets. The aussie was also supported against the yen as Japan’s central bank readies to meet in order to discuss further monetary stimulus. The New Zealand dollar continued its advance as economic releases revealed that the Service Industry grew at the quickest pace in close to five years.

EUR/USD- E.U. May Unlock Bailout Mechanism
The markets are still jittery as the euro-group prepares to meet today to discuss unlocking the bailout mechanism and providing Greece with 44 billion euros in aid. The decision to pay Greece the next installment has been delayed as the Euro Group and the IMF have not agreed on how to ensure Greece reduces the debt to a manageable level. Analysts believe the euro will trade mixed in the days to come, especially as they foresee no positive outcome from the meeting since the IMF is still advocating for a debt haircut.
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GBP/USD- BOE To Release Minutes
There were no important economic releases out of the U.K. but the sterling gained against the U.S. dollar as investors expect the U.S. will be able to avert the looming fiscal cliff. Market investors are also waiting for the Bank of England to release the Minutes from the recent Monetary Policy Meeting to obtain clues on which way the bank is leaning in regards to re-starting the asset-purchasing program. The quarterly Inflation release supported a pause; however, everyone wants to see how officials voted.

The sterling is also likely to remain sensitive to news out of the Euro region, especially since investors have considered it an alternative to buying euro assets. On the data front, Rightmove PIC revealed that Home Price increased for a third month in November, as overseas buyers continued to seek the most prestigious neighborhoods of London. Luxury Home values are currently 16 percent higher than in March 2008 when they reached their peak.
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AUD/USD- Aussie May Be Classified As Reserve
The Australian dollar gained against its peers as the International Monetary Fund announced it may classify the currency as a reserve asset, especially since the country has shown signs of stability after the 2008 financial crisis. Meanwhile, economists predict that the country’s Budget is expected to show a surplus. The Australian currency reached a session high against the greenback on hopes the U.S. will be able to prevent falling into another recession.
AUD/USD" title="AUD/USD" width="702" height="390">NZD/USD- Kiwi Edges Higher
The New Zealand dollar edged higher against the greenback on hopes the U.S. will avert the fiscal cliff. However, gains were limited as investors are still concerned over the situation in the euro region. The kiwi advanced as global stocks gained. On the data front, the nation’s central bank announced that the Performance of Business Index climbed from 49.9 in September to 57.4 last month, the biggest hike since the end of 2007.
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Today’s Outlook
Today’s economic calendar shows that Canada will report on Wholesale Sales. The U.S. will release data on Housing Starts, and Building Permits. Japan will issue the Trade Balance. And Australia will announce the MI Leading Index. The Federal Reserve’s Chairman, Ben Bernanke, is expected to deliver a speech and the Bank of Japan may hold a Press Conference.