Bell FX Currency Outlook: The Australian Dollar remains steady after a quiet night in offshore markets.

Australia: In contrast to every other trading day so far this year, the negative correlation between risk sentiment and the US Dollar has reasserted itself in overnight markets.

Thus equity weakness, which sees the major indices off about 0.4% on average headed into the close, is associated with across the board USD strength, against all bar the JPY and which continues to recoup some of its recent easily won losses.

Outside the JPY, the AUD, NZD and CAD continue to display the most resilience to an otherwise firmer USD. Of some note, the latter has not undermined commodity prices, with oil, precious metals and most industrial metals all modestly firmer while agricultural prices are softer with the exception of corn.

Benchmark sovereign bonds have rediscovered a little of their safe-haven status, with 10 year Treasuries and Bund yields both 2-3bps lower.

Today the market will focus on Australian retail sales as well the job vacancies release, both for November. Many in the market
remain fixated the AUD is targeting USD 1.0700 in anticipation of a slow grind higher over the next few weeks. It's hard to argue against this.

The negotiations around the US debt ceiling, which will take shape in February, may prove a headwind to this outlook at some point.

In Australia today, retail sales for November are released at 11:30 AEDT non-food retail sales expected to have grown thanks to solid employment growth, improving consumer sentiment and lower interest rates in and leading up to the month of November. We see the AUD tracking either side of 1.0500 for at least today.

Majors:There was very little price action overnight with modest USD strength observed in most currencies. Bigger moves occurred in EUR/JPY, which fell from just shy of 115.00 to 114.00 on strong demand for JPY at the London fix and rumours of a French downgrade (later revealed to be to false) weighing on the EUR.

Beyond retracement of the turn of the year market euphoria, part of the reason for the somewhat dour market mood is concerns about Europe's economic situation, as evidenced by last night's European data.

Eurozone unemployment rose to a fresh EU-era high of 11.8% with youth unemployment now a massive 23.7% in the Eurozone: 56.5% in Spain and 57.6% in Greece.

At least the various Eurozone survey readings, on business and consumer confidence, showed small rises. US earnings reporting season kicks off with Alcoa as soon as Wall Street closes.

For the S&P 500 overall, the street consensus is for earnings to post a 2.8% gain on the same period last year, a consensus
that is down sharply from 16.3% growth being forecast last April.
Economic Calendar
8 JAN AU Nov Retail Sales
GE Nov Industrial Production
UK Nov Trade Balance
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