USD Is Broadly On The Defensive

The US dollar is down today against most regional currencies. Most notable are the gains in commodity currencies such as the Australian and New Zealand dollars, which are helped by gains in stocks and commodities.

While emerging Asian currencies are also slightly firmer overall, the overnight moves in these currencies have been modest. Bucking the trend for a softer dollar today is the Japanese yen, which is extending its recent losses against the greenback. The news and events flow remained light. Among the few economic data releases today, South Korea’s November current account surplus narrowed to US$4.28B.

Europe
European currencies are heading higher against the US dollar, including the euro, the Swiss franc and the Swedish krona. Economic news was second-tier, but mostly positive nevertheless. Italian business confidence rose to 82.6 in December, a 17-month high, while Switzerland’s monthly consumption indicators firmed to 1.276 in November, the best reading since September 2008.

On the downside, Swedish retail sales unexpectedly fell by 0.6% m/m in November. Later today, the first estimate of German December CPI will be released, expected to show a 0.7% y/y gain. Meanwhile, the British pound is under performing its regional peers, trading little changed against the buck. In the emerging market space, the South African rand is up some 1.5% today, in line with broader strength in commodities and commodity currencies, while the ruble is lower by some 1%. Israel’s central bank surprised the markets with a 25bp hike to 1.25% yesterday, giving a boost to the shekel.

Americas
The Case-Shiller index of US house prices fell very slightly by 0.05% m/m in October, breaking the trend of five consecutive increases. The year/year trend is still getting less negative however, currently showing a fall of 7.3%. Later today, December consumer confidence is seen rising to 53.

Of some note are press reports that the Federal Reserve is planning to offer term deposits to banks as part of its ‘exit strategy’. The Fed also said that the plan “has no implications for monetary policy decisions in the near term”. Among regional currencies, the Canadian dollar is notably stronger this week, reaching its highest level since mid-October. The Brazilian real is also firmer this morning, while the Mexican peso is little changed in choppy trading.