The dollar took its cue this morning from Chinese government data showing that perhaps the domestic economy is chugging along comfortably after the impact of its $586 billion in stimulus efforts. But markets, being what they are, have twisted today's bullish data into a risk-off recipe that allegedly draws attention to the role of the dollar as a safe haven. We're not sure we concur with this view, yet remain content to watch the dollar extend gains after being bashed about for several days now. There's still no containing the euro, which continues to display a bullish undertow at $1.4982 this morning.

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The tonic for the U.S. dollar was engineered in a third quarter GDP report from China, which proved 8.9% growth. However, some are blaming a shortfall of a 9% reading as to why the commodity units are slumping today and why the dollar suddenly has a risk aversion attraction today. Yet with Wall Street still around a one-year high and the Vix gauge of investor anxiety at 22 and the price of crude oil just dipping also off a one-year peak at $80 a barrel it seems to us that a dollar retracement from earlier losses is a convenient excuse to state that risk aversion is back on form.

Investors poring over various Chinese data released overnight are in two mindsets. First, the data shows unambiguous domestic-led growth. Along side the GDP statistics was data for retail sales and industrial production for September. Both reports were strong and much of this flowing through to growth was a healthy production and sale of automobiles.

A separate Japanese report today showed that a previous dip in exports to China was largely stymied. September's export decline halved to China - again largely bolstered by auto demand. Urban fixed-asset investment in China was one third greater than during the same quarter a year ago as a result of stimulus plans, which saw the pace of road and power plant construction picked up sharply. As a result of massive lending expansion, retail sales have also surged. The interesting take away from the report is that net exports actually detracted by around 3.6% from the report, which effectively under whelms 4% consumption growth and a 7.3% jump in investment spending.

Investors are now turning cautious because they fear that stimulus might be withdrawn and there is the additional risk that effectively tighter conditions might at best create a plateau in demand and at worst see demand actually decline. For now investors are cringing at the prospect that removal of the training wheels will end in a sorry end. We're less convinced than the market on that front.

As a result of this the Australian and New Zealand dollars drop today makes a midweek multi-quarter high against the dollar look like a fading memory. Yet with energy, grain and metals prices pushing ever-higher we have to contribute today's move to profit taking.

The pound had built a nice head of steam on hopes for a strengthening recovery bolstered by the growing assumption that the asset purchase program would be deferred until needed, if at all. However, that perspective took a twin-blow when retail sales data was released and the deputy governor at the Bank of England indicated more quantitative easing might not be a bad thing. Retail sales data for September was unchanged month-over-month and therefore slipped back to a 2.4% annualized pace of growth. The pound is easier against the dollar today at $1.6563.

The dollar continued its rebound against a less responsive Japanese yen at ¥91.57. the euro also added to gains against the yen at ¥137.27.

Andrew Wilkinson