Week ending 19 December 2008: Market conditions continue fading to normal as reflected by the TED spread and the VIX index. USD’s role as a safe-haven currency was rocked by the cut to near-zero rates and commodity currencies were punished with crude oil falling to levels not seen since February 2004.

The October Westpac-MI leading index fell −0.1%; however, the 4Q2008 ACCI Index of Industrial Trends fared far worse, with the Actual Composite Index dropping −10.4 points, from 50.8 to 40.4, and the Expected collapsing −17.4 to 33.8. Dwelling starts for 3Q2008 fell −10.7% and December’s DEWR skilled vacancies −7.2%. AUD/USD rose to the top of its trading range and spiked through before sliding to close at 0.6823.

The FOMC slashed rates more than the expected 50bps, to 0.0–0.25%. The Philly Fed index for December rose to −32.9 and the Empire held steady at −25.76, while November CPI printed 1.1% with core (less food and energy) at 2.0%. The 3Q2008 current account balance narrowed again to −US$174.1Bn.

The Eurozone’s December PMI printed 34.5 for manufacturing and 42.0 for services, with the German Ifo registering 76.8 for expectations and 82.6 for business climate. CPI for November fell to 2.1% m/m and 1.9% for core prices. After testing and spiking through 1.4700, near the MA-200 on daily charts, EUR/USD corrected sharply on Friday to close the week at 1.3919.

The U.K. October unemployment rate ticked up to 6% and November’s jobless claims rose an additional 75.7K. November’s CPI printed at 4.1% y/y with core at 2.0%, while retail sales rose 0.3% m/m. GBP/USD rolled within and above its established range (1.4650 to 1.5525) to trade roughly flat for the week, while EUR/GBP set successive historic highs reaching 0.9554, easing to a close at 0.9329.

Canada’s leading indicators for November fell −0.7% m/m and wholesale sales for October −1.8%. November’s CPI printed 2.0% y/y and 2.4% for core prices, while October’s retail sales fell −0.9% m/m and ex-autos −1.1%. USD/CAD continued its downtrend through the early part of the week prior to following the general correction, closing at 1.2229. AUD/CAD, on the other hand, continued a gentle uptrend and moved into the upper portion of its trading range (between 0.8275 and 0.8485) despite generous spikes beneath, closing at 0.8344.

In New Zealand, 3Q2008 manufacturing unexpectedly rose 1.3% and December business confidence printed −35 from −43 previous. NZD/USD surged 500 pips, from 0.5500 to 0.6000, before correcting to close at 0.5748, while AUD/NZD echoed the general pattern, falling 400 pips before correcting and closing at 1.1855.

The Bank of Japan unexpectedly lowered interest rates to 0.1% as fundamental data rolled off a cliff. The 4Q2008 Tankan large manufacturers index fell to −24 from −3 previous (zero being baseline between positive and negative) while the outlook reading dropped to −36 from −4. The non-manufacturing sector printed −9 from 1 previous while that outlook dropped from −1 to −14. Nationwide department store sales are down −6.4% y/y and machine tool orders collapsed −62.1% annually. USD/JPY tested 87.00 before closing at 89.11. EUR/JPY surged above resistance at 125.85 before correcting and closing at 1.2401, while AUD/JPY remains rangebound above 61.50 and below 63.50, future moves to be determined by investors’ willingness to assume risk.