Week ending 23 January 2009: Fear continued to drive forex trading this past week, with JPY and USD appreciating as safe havens, and further weakness in GBP, EUR, and commodity currencies.

January Westpac consumer confidence printed at −2.2 from 7.5 previous. New motor vehicle sales in December rose 1.8%, nevertheless are down −15.7% y/y, while 4Q2008 import prices rose 10.8% q/q and export prices 15.9%. AUD/USD fell into the lower edge of its trading range and ended the week on profit-taking at 0.6564.

The FOMC meets Wednesday, 28 January, and is widely expected to leave rates unchanged at 0–0.25%. In a light data week, shortened by a U.S. holiday, housing starts fell to the lowest level since 1959 at 550K.

The ECB cut its expected growth outlook for 2009 from 0.1% to −1.9%. The German ZEW January economic sentiment indicator rose for the third consecutive month to −31 and the Eurozone ZEW to −30.8, although the reading for the current situation slipped further, to −77.1. November industrial new orders are down −26.2%, and the January PMI printed 34.5 manufacturing and 42.5 services. EUR/USD consolidates within a bearish price channel, best seen on four-hour charts, closing the week at the top of its range at 1.2985.

The BoE minutes were widely dovish, with all members calling for at least a 50bps rate cut and discussions of quantitative easing going forward. The first estimate of 4Q2008 GDP was the worst since 1980, −1.5% q/q and −1.8% y/y, although December retail sales rose 1.6% m/m. December CPI printed −0.4% m/m, 3.1% y/y, and 1.1% core, while jobless claims rose 77.9K and the unemployment rate ticked up to 6.1%. Sterling collapsed to multi-decade lows through the week, with GBP/USD closing at 1.3804 after testing 1.3500 and EUR/GBP again probing 0.9400.

As expected, the BoC cut interest rates by 50bps to 1.0%. December CPI printed at −0.7% m/m, 1.2% y/y, and 2.4% y/y core. November retail sales fell −2.4% m/m with international securities transactions down CA$4.3Bn, and December leading indicators registered −0.6% for the second consecutive month. The Canadian dollar was a high performer amongst the 16 most widely traded currencies, mainly on higher crude oil; USD/CAD traded roughly flat for the week while AUD/CAD fell to the middle of its trading range, closing at 0.8079.

The RBNZ meets Wednesday, 28 January, and is expected to cut rates anywhere from 75 to 150bps, depending upon whose survey is consulted. CPI for 4Q2008 fell −0.5% q/q to 3.4% y/y, with food prices falling −0.2%, and November retail sales were flat for the month. NZD/USD dropped into the lower half of its trading range, to levels not seen since early December, closing at 0.5320, while AUD/NZD edged higher to 1.2324.

As expected, the BoJ left interest rates unchanged at 0.1% and emphasized a quantitative easing plan in the accompanying statement. November industrial production is down −16.6% y/y with capacity utilization falling −9.4% m/m and the tertiary index printing −0.9%. December’s merchandise trade balance widened to a deficit of ¥320.7Bn. Nevertheless JPY strengthened against all major currencies as options expired on Wednesday, with USD/JPY breaking beneath 90.00 and closing at 88.84. EUR/JPY lost 4.5%, AUD/JPY 5.0%, and GBP/JPY 9.2%.