Positivity ahead of the release of the US Non-Farm payrolls tonight bolstered the US Dollar against major counterparts overnight. The US dollar index which measures the dollar's value relative to six major foreign currencies turned positive to finish up 0.6 per cent at 77.96. Economic news saw Initial Jobless Claims for the week of January 2nd came in better than expected to record a rise of 1000 new claims to 434,000. The number of people claiming unemployment benefits on an ongoing basis also continued to show strong signs of recovery.
The Bank of England kept its benchmark interest rate at a record low of 0.5 per cent overnight. As anticipated the central bank also announced the continuance of the 200 billion pound quantitative easing program, of which GBP193 Billion has been exhausted. Despite data suggesting the economy is in recovery mode, the bank recently warned of a slow and protracted recovery with economist's now predicting interest rates to remain at current levels until 2011.
Euro-Zone Retails sales for the month of November came in much weaker than expected falling 1.2 per cent representing an annualised decline of 4 per cent.
Greenback strength saw key commodities turn south, in turn placing additional pressure on the Aussie which has retreated from the domestic session highs of 92.67 US cents to current levels of 91.6 US cents. Yesterdays burst of energy came courtesy of November's Retail Sales data which outstripped expectation to record a growth of 1.4 per cent, against the upwardly revised 0.4 per cent growth in October.
This latest surge in Sales throws interest rates projections off kilter, with traders now balancing leading economic indicators such as today's result with the RBA's stance, which suggests interest rates are now back in the normal range. We also need to consider the minutes from the RBA's December meeting - although resembled the positive undertone of previous communiqué - the finer points indicated an attempt to pre-empt the curve, in effect providing some breathing space for the near term. Arguably, the conclusion of the minutes could be seen as precursor to the RBA stance on monetary policy when the bank reconvenes in February with the final paragraph stating as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings.