Week ending 30 January 2009: This forex trading week, signs of a gradual thaw in credit markets eased risk aversion early on, but week’s end saw renewed strength in safe haven currencies.

The RBA meets Tuesday, 3 February, and is expected to lower rates by 50–100bps from the current 4.25%. The 4Q2008 PPI rose 1.3% q/q to 6.4% y/y, partially due to a 15% rise in the cost of imported goods, and CPI fell −0.3% to 3.7%. Both the Westpac and the Conference Board November leading indicators fell to −1.0 although NAB business confidence recovered to −20, and December private credit fell to 6.7%, well below trend. AUD/USD rose early in the week on improved investor confidence but turned midweek and closed at 0.6352, the lower half of its established trading band.

As expected, the FOMC left rates unchanged at 0–0.25% and intimated it was closer to exercising quantitative easing measures. The first estimate of 4Q2008 US GDP printed −3.8% q/q, with an unexpected rise in inventories preventing a larger contraction, and personal consumption fell −3.5%. December durable goods dropped −2.6% m/m and new home sales −14.7% in the month although existing home sales rose 6.5%, and January consumer confidence fell further to 37.7, giving the new president the shortest honeymoon on record.

The ECB meets Thursday, 5 February, and recent statements by members show the committee to be divided although consensus leans toward no change in the interest rate from its current 2.0%, although it’s merely postponing the inevitable. January CPI slipped to 1.1% y/y and December unemployment rose to 8.0%, while consumer confidence dropped to −31. In Germany, CPI eased to 0.9% and the Ifo index unexpectedly improved for the first time in eight months. EUR/USD rose and fell on risk aversion in a 500-pip swing, closing flat for the week at 1.2804.

The BoE meets Thursday as well and is widely expected to slash rates by 50bps to 1.0%. January housing prices contracted −16.6% y/y and consumer confidence slipped to −37, although banks granted 31K home loans in December, up from 27K previous. GBP/USD rose 750 pips to 1.4491, near past support and possible future resistance at 1.4550, and EUR/GBP fell 8% and 600 pips to close at 0.8832.

Canada’s November GDP fell −0.7% m/m, much lower than market expectations. USD/CAD continues consolidating within its established trading band of 1.1775–1.2725, closing in the middle at 1.2263, while AUD/CAD fell off a cliff midweek to probe the lower limits of its range at 0.7790.

The RBNZ axed interest rates by 150bps to 3.5%. The December trade deficit narrowed to NZ$347Mn and credit card spending fell −3.9% y/y. NZD/USD fell through the bottom of its range to 0.5075 after the decision, and AUD/NZD tested August resistance at 1.2840 before closing at 1.2501.

Japanese December retail sales fell −2.7% y/y as unemployment jumped to 4.4%. CPI printed 0.4% y/y, 0.0% core, while industrial production dropped −9.6% y/y and vehicle production 25.2%. USD/JPY ended a stagnant week at 89.83, EUR/JPY rolled dramatically but traded flat for the week at 115.00, and AUD/JPY followed suit to close at 57.06.