Central bank announcements dominated the markets today. While RBNZ boosted up Kiwi by an optimistic tone in its statement, BoE and SNB delivered no surprise and thus kept both currencies in tight range against other majors. Dollar and yen are consolidating against European majors, following consolidations in commodities and equities. Canadian dollar is lifted mildly in early US session after strong than expected trade data. Gold is a bit soft but is still staying above 1120 level for the moment while Crude oil is hovering between 70/71. Some more sideway trading might be seen but after all, the bullish tone of dollar and yen has be set up and we'd expect more upside in both currencies after markets digest prior moves.

The SNB, as widely anticipated, held the three-month Libor target at 0.25%. The decision to leave interest rate unchanged at the moment was mainly because of dismal inflation outlook. Moreover, the central bank announced that it will stop purchases of corporate bonds, a sign of withdrawal non-conventional monetary policies. The central bank remained cautious about inflation outlook and did not rule out a possibility of deflation. The SNB anticipated average annual inflation will be around -0.5%, +0.5% and +0.9% in 2009, 2010 and 2011, respectively, largely unchanged from the projections in September. Policymakers acknowledged improvement in economic outlook though still viewed considerable uncertainty and fragility in recovery. For 2010, however, the SNB expects real GDP growth of between 0.5% and 1%. Concerning exchange rate, the central bank reiterated that it will act 'decisively to prevent any excessive appreciation of the Swiss franc against the euro'.

BoE left rates unchanged at 0.50% and kept the asset purchase target at GBP 200b as widely expected. The statement was rather short as usual and focus will turn to Minutes to be released on December 23.

Although the RBNZ's decision to leave the OCR unchanged at 2.5% had been widely anticipated, policymakers' shift to a more hawkish tone caught most market participants in surprise. In the accompanying statement, the central bank said that 'if the economy continues to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010'. Compared with previous comment that 'we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010', it indicated the RBNZ has turned slightly more hawkish than before.

On the data front, job report from Australia was surprisingly strong. Data from Australia saw the economy added 31.2k jobs in November, much more than consensus of 5.3k. More importantly, while markets anticipated a rise in unemployment rate from 5.8% to 5.7%, it actually dropped back to 5.7%. The data argues that October's climb in unemployment rate from 5.7% to 5.8% was a passing phenomenon in the recovery and the resilience in the labor market to economy slowdown is quite noteworthy.

Canadian trade balance turned to 0.4b surplus in October. US trade deficit narrowed slightly to -32.9b. Initial jobless claims rose slightly to 474k. Japanese machine orders dropped -4.5% mom, -21.0% yoy in October. Domestic CGPI dropped -4.9% yoy in November. German WPI rose 0.7% mom in November.

As discussed earlier, the reversal in AUD/NZD argues that rise from 1.1925 was over and we'd expect NZD to outperform AUD in near term. Rebound in NZD/USD might extend a little bit more on cross strength. However, the sustained trading below the medium term channel line does suggest that NZD/USD has made a top at 0.7632 already. We'd still anticipate another fall to push NZD/USD through 0.7024 support after completing the current near term rebound.


USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0485; (P) 1.0573; (R1) 1.0631; More.

USD/CADs break of 1.0481 minor support suggests that choppy recovery from 1.0405 has completed. Also, it shift favors to the case that correction from 1.0851 is still in progress. Intraday bias is mildly on the downside for 1.0405 low for the moment. Break will target 100% projection of 1.0851 to 1.0416 from 1.0748 at 1.0302 to conclude the correction. On the upside, we're treat USD/CAD as in consolidation mode before a break of 1.0748 resistance. But a break above 1.0748 will indicate that whole rise from 1.0205 is resuming for 1.1101 resistance next.

In the bigger picture, a medium term bottom might be in place at 1.0205 with bullish convergence conditions in daily MACD. As noted before, fall from 1.3063 is viewed as a correction to long term rise from 0.9056. Such correction might have already completed with three waves down to 1.0205 already (1.0784, 1.1732, 1.0205). Break of 1.1101 resistance will confirm this case and target 61.8% retracement of 1.3063 to 1.0205 at 1.1971 at least. On the downside, break of 1.0205 will invalidate this view and bring down trend resumption to parity instead.


Economic Indicators Update

20:00NZDRBNZ Interest Rate Decision2.50%2.50%2.50% 
23:50JPYMachine Orders M/M Oct-4.50%-4.60%10.50% 
23:50JPYMachine Orders Y/Y Oct-21.00%-20.90%-22.00% 
23:50JPYDomestic Corporate Goods Price Index Y/Y Nov-4.90%-5.10%-6.70%-6.80%
00:00AUDConsumer Inflation Expectation Dec3.60%--3.20% 
00:30AUDEmployment Change Nov31.2K5.3K24.5K27.2K
00:30AUDUnemployment Rate Nov5.70%5.90%5.80% 
07:00EURGerman Wholesale Price Index M/M Nov0.70%0.30%-0.40% 
08:30CHFSNB Interest Rate Decision0.25%0.25%0.25% 
09:00EURECB Monthly Bulletin ---- 
12:00GBPBoE Interest Rate Decision0.50%0.50%0.50% 
12:00GBPBoE Asset Purchase Target200B200B200B 
13:30CADTrade Balance (CAD) Oct0.4B-0.7B-0.9B 
13:30USDTrade Balance Oct-32.9B-37.0B-36.5B 
13:30USDInitial Jobless Claims474K465K457K 
15:30USDNatural Gas Storage -45B2B 
19:00USDFederal Budget Balance -136.0B-176.4B 

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