Friday's activity in the US saw positive economic feedback translate to bullish signs for the greenback. The risk appetite/aversion relationship which has governed dollar movements - by placing downward pressure on the dollar in times of heightened confidence - is now giving the US currency a leg up as investors predict a sooner than expected rate hike. Economic data showed US Retails Sales for the month of November rose 1.3 per cent, surpassing expectations of a 0.6 per cent rise. The University of Michigan Confidence survey outstripped expectations recording reading of 73.4 for the month of December. The consensus forecast was for a reading of 69.0 from 67.4 in November.
Investors now eagerly await Wednesday's FOMC meeting for clues on the fed's expectation on monetary policy going forward, however Fed Chairman Bernanke has been careful to paint a realistic view of the economic outlook, stating the economy faces formidable headwinds, and has reaffirmed the fed's stance on interest rates to remain at current levels for an extended period.
Friday we also saw further indications of the reliance of the Chinese economy, with industrial output rising 19.2 percent in November from a year earlier and 3.1 per cent higher than October. Retail Sales recorded an annual rise of 15.8 per cent for the month of November and Fixed Asset Investments recorded an on year rise of 32.1 per cent. Chinese exports were also boosted in the month of November which has been attributed to the weak Chinese Yuan which is pegged to the falling greenback - by default this provides a competitive edge to Chinese exports, thus a negative influence on other economies with 'free floating' currencies. Expect the depreciation of the Chinese Yuan to remain in the headlines as central banks continued to mount pressure to allow the Yuan to appreciate, thus providing an equal playing field against competing economies.
Meanwhile, the Aussie dollar remains perched above 91 US Cents leading up to a particularly important for week for economic feedback. Tuesday will see the release of the minutes for the RBA's December meeting which is likely to induce volatility given a reduction of market participants leading up to Christmas. Wednesday will also see the release of Gross Domestic Product which is expected to 0.4 per cent growth in the third quarter.