Australian Dollar: The Australian Dollar spent most of the Asian session above 99 cents yesterday as risk appetite continued to spur AUD demand. Adding to the local dollar’s rise was the release of the December 7th minutes by the Reserve Bank of Australia which stated it judged the current phase of monetary policy as being “mildly restrictive” and that “employment intentions generally remained solid”. Market participants are now expecting the next round of rate rises not to start until at least April 2011. During offshore trade the Aussie hit resistance around the US99.80 area. European Sovereign Debt continues to be the dominant theme at the moment with the majority of positive data being overlooked on release. We expect extended volatility in the lead up to Christmas on the FX markets.

We expect a range today of 0.99 to 0.9990

New Zealand Dollar: A return of risk appetite boosted the New Zealand Dollar overnight with the currency moving up almost 1 cent as high yielding currencies were back in vogue. The kiwi moved between 0.7400 and 0.7470 during the Asian session before pushing towards the 0.7500 cents level in offshore trade before European Sovereign Debt concerns once again took hold. At time of writing the New Zealand is changing hands at 0.7448 against the Australian Dollar, a level not seen since July 2002.

We expect a range today of 0.7400 to 0.7500

Great British Pound: The state of the United Kingdom’s public finances cane under the spotlight last night and sent the pound lower against the Euro (0.8467) and to a 3-month low against the greenback at 1.5435. November’s budget deficit swelled to a record 22.8 billion pounds, up from 16.7 billion pounds a year earlier. Markets sold the pound from an intraday high of 1.5567 on speculation the Bank of England will need to retain a loose stance on monetary policy. Minutes from the last Bank of England policy meeting are scheduled for release tonight. Against its antipodean rivals, the pound is also weaker at 1.5510 against the Aussie and 2.0810 against the New Zealand Dollar.

We expect a range today of 1.5350 to 1.5500

Majors: The Euro (1.3094) nudged a two-week low overnight as credit downgrade rumours emerged once again, Moody’s Investor Service said it may cut Portugal’s credit rating, pushing the 16-nation currency down to 1.3072. On the plus side, the Euro was supported by comments from the Chinese vice-premier who said their nation had taken “concrete action” to help the European Union with its debt problems. The EU is China’s largest trading partner. However, whilst the credit downgrade speculation continues, the market will remain bearish on the Euro. Meanwhile, the greenback opens at 83.70 against the Yen after the Bank of Japan yesterday left rates unchanged (zero to 0.1 per cent).

Data releases

AUD: RBA Foreign Exchange Transaction (DEC)

NZD: GDP (YoY)

JPY: Emperors Birthday

GBP: Bank of England Minutes; GDP (YoY and QoQ)

EUR: Italian Hourly Wages; French Consumer Spending

USD: GDP (3Q); Existing Home Sales

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