“Australia’s dollar snapped a three- day gain after government data showed the nation’s retail sales unexpectedly declined.

The country’s bonds advanced amid speculation the Reserve Bank of Australia will cut interest rates by March to support the economy. New Zealand’s dollar rose against all its major counterparts after data showed building approvals for detached houses surged to the highest in more than two years.

“The Aussie is struggling to rise,” said Satoshi Okagawa, a senior global markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “I can’t see an immediate pickup in corporate confidence or retail sales.”

The Aussie was unchanged at $1.0503 as of 4:55 p.m. in Sydney after rising 0.4 percent in the past three days through yesterday. New Zealand’s currency climbed 0.2 percent to NZ$1.2524 per Australian dollar and rose 0.2 percent to 83.86 U.S. cents.

Australian retail sales fell 0.1 percent in November from the prior month, the Bureau of Statistics said today, while economists estimated a 0.3 percent increase. Job vacancies dropped 6.9 percent the same month, a separate report showed.

The yield on Australia’s three-year note slid four basis points to 2.8 percent. New Zealand’s two-year swap rate was little changed at 2.75 percent.

Traders see a 60 percent likelihood that the RBA will cut its benchmark rate to 2.75 percent or lower by March, according to overnight index swaps data compiled by Bloomberg. The key rate currently stands at 3 percent….”

“The yen fell against the dollar, halting a two-day gain, as Prime Minister Shinzo Abe met central bank governor Masaaki Shirakawa and said he wants the Bank of Japan (8301) to double its inflation goal to 2 percent.

Japan’s currency weakened at least 0.2 percent versus all its 16 major counterparts after Shirakawa said the BOJ was in close contact with the government, adding to speculation policy makers will boost stimulus that tends to debase the currency. The euro fell for a second day against the dollar before the European Central Bank meets tomorrow to decide on interest rates. Norway’s krone weakened after Trade Minister Trond Giske said its recent strength was “worrisome.”

“There are rumors that the BOJ will be open to changing the inflation target and this is something that weakens the yen,” said Antje Praefcke, a senior currency strategist at Commerzbank AG in Frankfurt. “The trend for yen weakness should continue.”

The yen fell 0.4 percent to 87.43 per dollar at 7:02 a.m. in New York after strengthening 1.3 percent in the previous two days. Japan’s currency declined 0.2 percent to 114.07 per euro after depreciating to 115.99 on Jan. 2, the weakest since July 8, 2011. The euro fell 0.3 percent to $1.3048.

Commerzbank recommends selling the yen should it strengthen beyond 87 per dollar and predicts it will weaken to 90 per dollar, Praefcke said…..”

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“Brazil swap rates rose as a measure of inflation accelerated, bolstering bets that policy makers will have to raise borrowing costs to tame price increases.

Swap rates on contracts due January 2015 rose four basis points, or 0.04 percentage point, to 7.74 percent, matching a one-week high reached on Jan. 4. The real gained 0.2 percent to 2.024 per U.S. dollar at 10:06 a.m. in Sao Paulo.

The Getulio Vargas Foundation’s IPC-S gauge, which monitors prices in Brazil’s seven biggest cities, rose 0.77 percent in the 30 days ending Jan. 7. The median estimate of 14 analysts surveyed by Bloomberg was for a 0.71 percent increase.

“Inflation numbers continue surprising on the upside and are one of the principal risks for 2013,” said Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA (ACA), said in a phone interview from Sao Paulo.”

“The pound fell toward the weakest level in a month against the dollar after an industry report showed U.K. retail sales slowed in December, adding to signs Britain’s economy is lagging behind U.S. growth.

Sterling depreciated against all except two of its 16 major counterparts before a Bank of England meeting this week at which policy makers are forecast to keep interest rates at a record low as it struggles to stoke a recovery. The U.K. economy shrank 0.1 percent last year, while the U.S. expanded 2.2 percent, according to a Bloomberg News surveys. Gilts rose as the Debt Management Office sold 1.5 billion pounds ($2.41 billion) of bonds due in December 2030.

“U.S. growth is outperforming U.K. to such an extent that the last time we saw this kind of a differential was pretty much in the 1980s,” said Peter Kinsella, a senior foreign-exchange strategist at Commerzbank AG in London. “Definitely you’ll see lower levels in cable over the course of the year,” he said, referring to the pound-dollar exchange rate.

The pound dropped 0.1 percent to $1.6096 at 12:34 p.m. London time after falling to $1.6010 on Jan. 4, the lowest level since Dec. 7. The U.K. currency also declined 0.1 percent to 81.50 pence per euro.

Sterling has weakened 0.4 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 2.7 percent and the dollar fell 4.5 percent…”

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“Gold gained for the first time in four days in London as a weaker dollar and prices near a four- month low increased investor demand.

Bullion slumped to a four-month low on Jan. 4 after minutes from the Federal Reserve showed that policy makers may end $85 billion in monthly bond purchases some time this year, boosting the U.S. Dollar Index to a six-week high. The dollar gauge, a measure against six currencies, fell for a second day today.

“The metal has recovered from recent lows amid dip-buying and a retreat in the U.S. dollar,” analysts at Mumbai-based Kotak Commodity Services Ltd. said today in a report. “However, weighing on the gold price is uncertainty about the Fed’s asset purchase program after the latest Federal Open Market Committee minutes.”

Gold for immediate delivery added 0.2 percent to $1,651 an ounce by 9:35 a.m. in London. It reached $1,625.85 on Jan. 4, the lowest since Aug. 21. Gold for February delivery was 0.3 percent higher at $1,651.10 on the Comex in New York.

Holdings in gold-backed exchange-traded products were at 2,622.3 metric tons yesterday, about 0.4 percent below the record set Dec. 20, data compiled by Bloomberg show. Prices gained for a 12th consecutive year in 2012 as central banks from the U.S. to China pledged more steps to spur economic growth…”

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“The Australian dollar fell for the first time in three days after the nation reported the biggest trade deficit in more than four years.

New Zealand’s dollar weakened after Asian equities slid by the most in two weeks, reducing demand for higher-yielding assets. Both nations’ dollars also weakened against the yen on speculation recent losses for Japan’s currency were excessive.

“The big trade deficit reported in Australia and lower equity markets are driving a risk-off sentiment,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “That’s pushing the Australian dollar lower.”

Australia’s currency fell 0.2 percent to $1.0478 as of 4:46 p.m. in Sydney and declined 0.6 percent to 91.70 yen. New Zealand’s dollar weakened 0.2 percent to 83.57 U.S. cents and 0.5 percent to 73.13 yen.

Australia’s imports outpaced exports by A$2.64 billion ($2.77 billion) in November, the biggesttrade shortfall since March 2008, from a revised A$2.44 billion deficit the prior month, data compiled by the statistics bureau showed today.

Traders see about a 60 percent chance the Reserve Bank of Australia will lower the benchmarkinterest rate from 3 percent this quarter, according to Bloomberg data on overnight index swaps. This compares with a less than 20 percent probability that New Zealand’s central bank will reduce borrowing costs from 2.5 percent….”

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“Japan plans to use its foreign- exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken its currency, Finance Minister Taro Aso said.

“The financial stability of Europe will help the stability of foreign-exchange rates, including the yen,” Aso told reporters today at a briefing in Tokyo. “From this perspective, Japan plans to buy ESM bonds,” he said. The purchase amount is undecided, Aso said.

The move may help Prime Minister Shinzo Abe temper criticism of Japan’s currency policies from trading partners such as the U.S. The yen has fallen around 8 percent against the dollar since mid-November on Abe’s pledge to reverse more than a decade of deflation as his Liberal Democratic Party won an election victory last month.

“The Europeans would be happy to see Japan buy ESM bonds, so Japan can avoid criticism from abroad and at the same time achieve its objective,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former central bank official.

The yen erased gains after Aso’s comments, reaching 87.81 per dollar, before appreciating again to 87.51 as of 7:14 a.m. New York time. The Japanese currency appreciated 0.3 percent to 114.86 per euro….”

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“The euro declined toward a three-week low against the dollar amid speculation the European Central Bank will signal it is open to cutting its benchmark rate when policy makers meet this week.

Europe’s shared currency declined versus 13 of its 16 major counterparts after a report showed producer-price inflation in the euro-area slowed more in November than economists forecast. The yen strengthened from near the weakest level since July 2010 against the dollar even amid media reports that the government will announce additional stimulus measures.

“The ECB meeting will be the focus this week,” said Jane Foley, a senior currency strategist at Rabobank International inLondon. “If there is more speculation about the ECB cuttinginterest rates that could undermine the euro against the dollar.”

The euro dropped 0.2 percent to $1.3041 at 11:01 a.m. London time after falling to $1.2998 on Jan. 4, the lowest level since Dec. 12. The single currency fell 0.5 percent to 114.63 yen.Japan’s currency strengthened 0.3 percent to 87.90 per dollar after depreciating to 88.41 on Jan. 4, the weakest since July 15, 2010.

ECB President Mario Draghi’s Governing Council, which cut economic and inflation projections last month, will keep its benchmark refinancing rate at a record low of 0.75 percent on Jan. 10, according to a Bloomberg News survey of 55 economists. Five predict the central bank will reduce the benchmark rate to 0.5 percent….”

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“Australia’s dollar rose against most of its 10 developed-market peers on speculation Japan will increase spending to bolster its economy, supporting demand for assets linked to global growth.

The so-called Aussie advanced versus the New Zealand dollar before data this week forecast to show improvement in retail sales and building approvals in Australia. New Zealand’s currency, known as the kiwi, weakened against the majority of its peers as Asian stocks halted an advance from last week.

“Considering the relatively deep economic ties, an accelerated rebound in Japan’s economy will be positive” for the Australian currency, said Kengo Suzuki, a strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. Suzuki said he is “bullish” on the Australian dollar.

The Australian dollar traded at $1.0469 as of 4:23 p.m. in Sydney after rising 0.1 percent on Jan. 4 to $1.0480. The Aussie advanced 0.2 percent to NZ$1.2627. The kiwi fell 0.3 percent to 82.90 U.S. cents…”

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“The dollar strengthened to a 2 1/2- year high against the yen, gold led commodities lower and Treasuries fell after the Federal Reserve said it may cut cash infusions this year. European stocks retreated while U.S. equity-index futures were little changed.

The U.S. currency rose against all but one of its major peers, appreciating 1.2 percent to 88.27 yen at 7:30 a.m. in New York. Treasuries fell for a fourth day, pushing 10-year yields to the highest since May, while U.K. gilts and German bunds also declined. Gold dropped 1.6 percent and oil in New York slid 1.1 percent. The Stoxx Europe 600 Index slipped 0.2 percent, while Standard & Poor’s 500 Index futures added less than 0.1 percent…”

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“Australia’s dollar fell against its U.S. counterpart, trimming a weekly gain, after service-industry indexes in the South Pacific nation and China declined.

Australian bonds dropped, pushing benchmark 10-year yields to the highest in more than four months after gains in Asian stocks curbed demand for haven assets. The so-called Aussie and New Zealand’s dollar were supported against the yen amid speculation the Japan’s central bank will boost stimulus to weaken its currency.

“The Aussie is looking a bit overvalued,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. “The risk scenario for the Aussie is for the recovery in the Chinese economy to halt and Australia’s domestic demand to deteriorate.”

The Australian dollar fell to $1.0441 as of 4:25 p.m. in Sydney, down 0.2 percent from yesterday and poised for a 0.7 percent gain this week. It climbed 0.4 percent to 91.66 yen from yesterday, when it touched 91.76, the highest since September 2008.

New Zealand’s dollar, known as the kiwi, dropped 0.4 percent to 82.47 U.S. cents from yesterday, paring its gain since Dec. 28 to 0.6 percent. It rose 0.2 percent to 72.39 yen…”

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“….Historically US dollar cycles persist for an average of seven years, hence the current bear cycle in the US dollar is in its 11th year, and consequently should be viewed as long in the tooth. This has important implications for commodity markets not least given the growing correlation between risk assets since the onset of the financial crisis. Turns in the US dollar following bear cycles can be violent. For example, when the dollar turned in July 1980, the dollar appreciated by just over 40% within the following 12 month period. Given the ongoing weakness in the US basic balance we expect a turn in the dollar is some way off and that the US dollar will display weakness in the first half of this year.

Below is a chart showing the U.S. dollar’s decline over the last decade:

…”

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“The dollar rose to its strongest level in almost three weeks against the euro on speculation U.S. policy makers will struggle to reach agreement on raising the nation’s debt limit, underpinning demand for the safest assets.

Japan’s yen appreciated at least 0.3 percent against all its 16 major counterparts amid concern the U.S. Treasury will exhaust what it called “extraordinary” measures to keep funding the government by late February or early March after the nation hit its $16.4 trillion debt ceiling on Dec. 31. The dollar rose the most versus the higher-yielding South African rand after the International Monetary Fund said yesterday the U.S. ought to raise the debt ceiling “expeditiously.”

“All the way through the first few months of the year it will be fiscal policy and monetary policy which are at the forefront of people’s minds,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London. “There was a risk of some pullback” after the dollar initially weakened yesterday, he said.

The dollar advanced 0.7 percent to $1.3089 per euro at 7:21 a.m. New York time and reached $1.3082, the strongest level since Dec. 14. The yen rose 1.3 percent to 113.71 per euro. Japan’s currency gained 0.5 percent to 86.87 per dollar after depreciating to 87.36, the weakest since July 2010.

The U.S. currency will strengthen to $1.19 per euro by year-end, Robson said. That compares with a median estimate of $1.27, based on analyst forecasts compiled by Bloomberg….”

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“Gold fell in London with stocks and oil after reaching a two-week high yesterday and as a stronger dollar curbed demand for bullion as an alternative investment.

Gold rose to the highest since since Dec. 18 yesterday after U.S. lawmakers passed a bill averting automatic spending cuts and tax increases, heading off the so-called fiscal cliff. TheU.S. Dollar Index, a gauge against six counterparts, rose to the highest since Dec. 11 today, on speculation policy makers will struggle to reach an agreement to raise the U.S. debt limit….”

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“The Australian dollar retreated from near a two-week high as concern U.S. lawmakers will struggle to agree on raising the nation’s debt ceiling overshadowed the bill they passed to avert the so-called fiscal cliff.

The Aussie slid versus most of its 16 major counterparts as officials in the world’s biggest economy turned their attention to a debate over raising the $16.4 trillion debt limit. An increase will be needed as early as mid-February, according to the U.S. Congressional Budget Office. The New Zealand dollar, also known as the kiwi, reversed a gain from yesterday as U.S. stock futures fell.

“All along, it’s been clear that the fiscal deal was not going to bring any real progress for long-term spending and tax reform,” said Todd Elmer, head of Group of 10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore. “There is some further upside for the Aussie and I doubt this temporary dip that we’re seeing is going to last.”

The Australian dollar lost 0.1 percent to $1.0491 as of 5:32 p.m. in Sydney from $1.0504 at the close yesterday, when the currency touched $1.0524, the strongest since Dec. 19…”

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“The yen and dollar weakened against higher-yielding currencies after U.S. lawmakers passed a bill undoing income-tax increases, helping avoid the so-called fiscal cliff and damping demand for refuge assets.

The Dollar Index fell the most in five weeks even as Republicans vowed to fight PresidentBarack Obama for spending cuts in exchange for raising the debt ceiling. The Australian and New Zealand dollars rallied and the pound rose to a 16-month high versus the U.S. currency. The yen slid beyond 87 per dollar for the first time since July 2010 after Japanese Prime Minister Shinzo Abe reiterated his intention to weaken the currency.

“There’s been a relief rally but most people expected the U.S. would come to some sort of a deal so this had been priced in,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “Currencies like the Australian dollar have also done very well. Breaking through 87 is a massive deal for dollar-yen.”

The dollar declined 0.4 percent to $1.3247 per euro at 6:14 a.m. New York from Dec. 31 after falling as much as 0.8 percent, the biggest drop since Nov. 23. The yen depreciated 0.9 percent to 115.49 per euro after sliding to 115.99, the lowest since July 8, 2011. The yen slid 0.5 percent to 87.16 per dollar. It reached 87.33, the weakest since July 29, 2010.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, slid 0.3 percent to 79.499 after dropping as much as 0.6 percent, the most since Nov. 23….”

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“The dollar gained for a second day against the euro as the deadline for U.S. lawmakers to reach a deal to avoid tax increases for almost all workers approached, spurring demand for the relative safety of the greenback.

The U.S. currency rose toward the strongest since August 2010 versus the yen after talks between Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell stalled yesterday because of disputes over income-tax rates and other issues. The euro fell against all except two of its 16 major peers as German Chancellor Angela Merkel said the region’s debt crisis was “far from over.” The yen weakened on speculation the Bank of Japan will boost stimulus at its January meeting to spur growth.

“We could go right to the wire, that looks like the most likely scenario,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If trading conditions become more risk averse, it could actually support the dollar in the near term if an agreement isn’t reached today.”

The dollar strengthened 0.2 percent to $1.3191 per euro at 7:44 a.m. New York time after gaining 0.2 percent on Dec. 28. The U.S. currency appreciated 0.2 percent to 86.17 yen after rising to 86.64 yen on Dec. 28, the strongest since Aug. 3, 2010. The yen was little changed at 113.66 per euro….”

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“The Australian dollar held an advance this year as a private gauge showed manufacturing expanded more than economists forecast in China, the South Pacific nation’s biggest trading partner.

The so-called Aussie and its New Zealand counterpart climbed versus most of their major peers before data this week that analysts say will indicate an expansion in U.S. factory output. Senate Majority Leader Harry Reid said the chamber will resume a session today in an attempt to avoid more than $600 billion in tax increases and federal spending cuts set to start taking effect in January in the world’s biggest economy.

“The global backdrop paints a relatively favorable picture for the Aussie dollar,” said Gavin Stacey, the chief interest- rate strategist in Sydney at Barclays Plc. “It’s hard to envisage a selloff for the Aussie when the global manufacturing backdrop is in an improving mode.”

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Back in May, as the euro zone veered deeper into crisis, Nobel Prize-winning economist Paul Krugman penned one of his gloomiest columns about the single currency, a piece in The New York Times entitled “Apocalypse Fairly Soon.”

“Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams,” Krugman wrote. “We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years.”

Krugman was far from being alone in predicting imminent doom for the euro in 2012. Billionaire investor George Soros told a conference in Italy in early June that Germany had a mere three-month window to avert European disaster.

Then in July, Willem Buiter, chief economist at Citigroup and former Bank of England policymaker, raised the probability that Greece would leave the euro to 90 percent, even going so far as to provide a date on which it might occur.

Buiter’s D-Day — January 1, 2013 — falls next week. And yet no one now believes a“Grexit,” or catastrophic implosion of the euro zone for that matter, is just around the corner…”

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“The dollar strengthened the most in a week and European stocks retreated as U.S. lawmakers prepared to debate tax increases and spending cuts that take effect next month. Italian bondserased losses as the government sold debt.

The Dollar Index rose 0.4 percent at 10:35 a.m. in London. The Stoxx Europe 600 Index fell 0.3 percent and Standard & Poor’s 500 Index futures lost 0.2 percent. The yield on Italian 10-year bonds erased an earlier gain of as much as four basis points as demand increased at an auction….”

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