Week ending 16 January 2009, another round of risk aversion as corporate earnings season emphasizes the undercapitalization still dogging many international banks and more government bailouts were required in the U.S. The disconnect between fundamental data and currency pair behaviour became sharper as fear dominated forex trading.

The Australian economy shed −1.2K jobs in December, significantly better than November’s −16.2K drop, and jobs ads fell −9.7% although the unemployment rate only ticked up to 4.5%. Housing finance for owner-occupiers grew 1.3% in November in response to the RBA’s lower interest rates; however, investment lending fell −6.1%. AUD/USD fell −4.2% in the week although remaining within its wider consolidation range, paring losses on Friday to close at 0.6724.

December U.S. PPI printed −0.9 y/y, ex food and energy 4.3%, with CPI printing 0.1% y/y and core 1.8%. Retail sales fell −2.7% in December. The trade balance shrank further, to US$40.4Bn, with November TIC flows easing to $56.8Bn. Industrial production is down −7.8% y/y.

The ECB cut interest rates by 50bps to 2.0% and signalled that the March policy meeting is the next important one, rather than February. December CPI printed 1.6% y/y and 1.8% core, with EU new car registrations dropping −18.2%. November industrial production is down −7.7% y/y and the trade balance ballooned to a deficit of €7.0Bn n.s.a. EUR/USD trades within a bearish price channel dating from 18 December, visible on four-hour and daily charts, ending the week bouncing from stiff support at 1.3070.

The U.K. visible trade balance unexpectedly widened despite GBP depreciation, to a deficit of £8.33Bn. One measure of housing prices fell −8.6% y/y in November, while BRC retail sales gauge fell −3.3% in December. GBP/USD consolidates within a sweeping 1,000-pip range, clearest on daily charts, and EUR/GBP continues to respect resistance at 0.9100.

The BoC meets 20 January and is widely expected to lower interest rates by 50bps. November motor vehicle sales fell −7.0% and the new housing price index fell −0.3% m/m. The 4Q2008 BoC loan officer survey found that 75.8% were less willing to extend credit, while the business outlook survey was 57% negative, and international merchandise trade fell by more than half to CA$1.3Bn from $3.3Bn previous. USD/CAD gained 4.9% on declining crude oil prices, closing at 1.2478, and AUD/CAD although profitably volatile traded flat for the week.

In New Zealand, November building consents rose 4.3% although December REINZ housing prices fell −4.8% in the year. NZIER 4Q2008 business confidence rolled off a table, printing −64% from −19% previous. NZD/USD fell −7.6% for the week, closing at 0.5467, and AUD/NZD continued its uptrend to 1.2284.

Japan’s November trade balance registered a deficit of ¥93.4Bn and the current account total shrank by nearly half to ¥581.2Bn. The Eco Watchers survey printed 17.6 for outlook and 15.9 for current, with 50 being the breakeven figure, while machine orders collapsed −27.7% y/y and machine tool orders −71.9%. USD/JPY declined then rose, trading flat for the week, with EUR/JPY bouncing from support at 116.30 to close at 120.36. AUD/JPY, the definition of the carry trade, lost ground on risk aversion and closed at 60.91.