Australia: The Australian Dollar has opened today where it closed on Friday evening in the mid .9800’s as the fears that China would raise interest rates to cool down their fast expanding economy did not eventuate. Instead they raised the reserve requirements that banks must keep with the central bank by 50bps, the third time in five weeks. For the year ended November, inflation in China was 5.1% with food rising almost 12%. A more bullish tone for the AUD will probably continue since exports in the last year increased by 34.9% and imports rose 37.7%, both much stronger than expected. Industrial production and fixed asset investment were all strong. The 5-year Chinese plan for their economy, which was released on the weekend, will target more domestic consumption with a lesser emphasis on exports and investment. Their focus was all about stability, which means we are not likely to see any significant appreciation in the yuan in the next several years. Adding a firmer tone to the AUD were the best US consumer confidence figures seen in the US in the last six months and expectations that holiday retail sales should be the best in the last four years. Better trade data in the US, which is starting to see the benefit of a weaker currency, added to the firmer tone in all markets with equity prices in all the major markets generally slightly up. US interest rates in the bond market continue to move up wit the 10 year maturity rising 32 bps for the week and close to 1% in the last month or so. Gold was slightly off to US$1385 an ounce and oil fell to US$ 87.79 a barrel. We expect a quiet trading day today. RBA Governor Stevens is addressing the Senate committee on banking competition today.

Majors: There was little movement in the EUR, GBP and JPY against the USD on Friday. In Europe, Germany’s Chancellor Merkel and France’s President Sarkozy have said the survival of the euro is ‘nonnegotiable”. On Dec 16-17 the EUR summit meeting is focused on establishing a permanent crisis resolution mechanism. We remain sceptical that will occur in the short run.

Newsletter: Subscribe to receive this report daily