US Dollar Hits Four Week Lows - More to Come? (page 2 of 2)

We have heard very hawkish comments from government officials throughout the past week, which has led the market to be very bullish on the British pound. Although there are a handful of UK data due for release next week, not much will be particularly market moving. Housing sector indicators should show strength, just like they have been for the past few weeks. Manufacturing PMI data should also remain steady in the month of October.

These improvements could also help to boost consumer confidence. It is worth noting though that the GBP/USD is knocking on the 1.90 door, which is not far from where it has topped out three times over the last three months.

Japanese Yen

Disappointing retail sales sent the Japanese Yen tumbling last night, but yen positive comments from the Ministry of Finance's Watanabe saved the day. The 150 level has once again proved to be rock solid resistance in EUR/JPY as government officials jawbone the currency whenever it reaches those levels. Watanabe's comments were simple, but it was also all that the market needed. He said that he does not expect further yen weakness given current economic conditions in Japan.

Inflation data was closely watched last night, but they came out pretty much in line with expectations. The lack of any significant rise gives the BoJ no reason to change interest rates in the near future. In the week ahead we are expecting a number of important Japanese economic releases including industrial production, unemployment, income as well as the central bank's semi-annual outlook for inflation and economic activity. The busy week worldwide should give us much interesting volatility.

Commodity Currencies (CAD, AUD, NZD)

The Canadian, Australian and New Zealand dollars all rallied against the US dollar today as commodity prices continued to rebound. The Australian dollar, which has had a very good week, hit another monthly high as the market prices in a 25bp rate hike next week. The country is doing very well economically and we expect next week's building approvals, retail sales and trade balance reports to reflect that.

The New Zealand dollar also rebounded on the back of a smaller deficit, but the RBNZ's cautionary comments on inflation should keep the kiwi under pressure. Building permits, money supply and business confidence are due for release - none of which should be particularly market moving.

Even though the Canadian dollar has firmed significantly against the US dollar, it continues to weaken against the Japanese Yen and Euro. Economic data has been far from impressive and next week's inflation, GDP and employment data should reflect that.