US Dollar Outlook: Christmas Shopping Season Expected to Be Strong (page 2 of 2)

As long as the housing sector continues to boom, the BoE will continue to consider the option of raising interest rates. Meanwhile money supply data for October was slightly softer after hitting 16 year highs in September, which confirms the weakness that we saw in consumer and producer prices last week. It also validates the central bank's downgrade to their inflation forecasts. Manufacturing sector data is scheduled to be released tomorrow. After a surprise drop in October, the November numbers are expected to rebound.

Japanese Yen - The Japanese Yen reversed most of Friday's gains as traders struggle to figure out where the currency is headed. The lack of critical comments about the yen at the G20 meeting this weekend gave some traders the confidence to plow back into short yen carry trades. In fact, the Japanese government continued to talk down the yen with the Japanese Finance Minister saying that FX rates should reflect economic fundamentals and be determined by the market.

The Vice Finance Minister even added that they are not concerned about the unwinding of carry trades. This Laissez-faire approach suggests that the government still favors a weak yen and as such, this gives a green light for carry trades to remain intact at least until the Thanksgiving holiday. The Bank of Japan will be releasing the minutes from their October monetary policy meeting tonight. No surprises are expected as monetary policy members unanimously vote to leave interest rates unchanged.

Commodity Currencies (CAD, AUD, NZD) - The New Zealand dollar is the day's best performing currency pair, confirming that carry trades are back in play. Visitor arrivals rebounded after a drop in September, but the possibility of more uridashi issuance and the country's attractive yield continues to fuel gains. It has even helped to lead the Australian dollar higher. Both countries do not have any more economic data due for release this week, but the combination of firmer commodity prices and high interest rates could keep the currencies bid.

Despite unchanged oil prices and the biggest fall in wholesale sales since July 2005, the Canadian dollar rebounded on acquisition news. TD has announced that it is buying the remainder of TD Banknorth for $3.2 billion. Retail sales and leading indicators are due for release tomorrow. Both are expected to be weaker which would confirm the deterioration in the overall economy and illustrate the powerful impact that oil prices have on Canada.