• USD/CAD 0.5%
• AUD/USD -0.6%
• NZD/USD -0.7%

USD/CAD

Rate Hike Expectations Run Thin: According to Statistics Canada, core consumer price inflation declined 0.1 percent on the month, bringing the annualized comparison to 1.6 percent.  Comparatively, the annualized rise in consumer prices overall climbed 2.2 percent in December and suggests that inflationary pressures may be slightly weaker than had earlier been anticipated by policy makers as crude oil products dipped 1.7 percent on the month.  Nonetheless, the gauge still resides above the 2 percent benchmark set by central bankers and will likely prompt Governor David Dodge to raise rates a fourth time on January 24th.  However, traders on the day bid the Canadian major lower on the session and look to continue to do so, as the figure was below earlier estimates and leaves the current hike momentum questionable.  Considerable attention is now looking ahead to the upcoming international securities transactions report on Thursday.  Already on a declining trend, the capital report may add to further downside in the loonie should the amount of investment remain thin.

Technically Speaking: Breaking through resistance from yesterday's scant action, the Canadian dollar has breached the intraday high of 1.1651 and is stalling ahead of the January 9th hourly spike high at 1.1738.  With paring likely taking over, sparked by a prototypical doji formation, the price action will first seek out the 23.6% fib from the 2-day bull wave as it forms a confluent level with the 10-hour simple moving average.  Confirming short term downside looks to be the death cross in the Stochastic.  Nonetheless, overall upside potential continues to remain as bulls make an attempt on the channel topside trend line at 1.1750, already closing above the 50-day moving average.

Rumorville: Bids continue to support bottom side at 1.1655 with offers countering at 1.1745/50 which serves as the tested resistance of the January 9th high.  Subsequent stops are being eyed at 1.1785/90.

AUD/USD

Westpac Leads Positive, Bears Push Lower: According to the Westpac-Melbourne Institute's leading index of economic activity, Australia looks to be in for stronger growth in the first quarter of 2006 as the report rose 1.3 percent in the month of November.  Attributed to higher growth, which was subsequently raised to 3 percent against the 2.5 seen in 2005, looks to be increased activity in mining and commodity exports.  As a result, next week's quarterly inflation report will be well anticipated in confirming any signs of increased activity and near term expansion possibly, albeit faintly, prompting reconsideration by policy makers in keeping the current benchmark at 5.5 percent.  However, dollar favoritism prevailed on the session as it was speculated that weak inflationary conditions may spill over from the Kiwi trade partner.

Technically Speaking: Falling lower after the break of the short term channel, the currency pair is consolidating ahead of the January 6th hourly spike low of 0.7448 while finding a temporary floor at 0.7474.  Further immediate downside looks probable given the continued strength of topside resistance by the 10 and 20-hour single moving averages with confirmation being visually displayed by the mounting decline in the Stochastic.  Notably, the short term play looks to be reflective of the longer term plan as the price action breaks consolidation and resumes its channel decline.  Nonetheless, a potential burst to the upside would additionally see the 50-hour come into play at 0.7510/00 area with a capping at 0.7530.

Rumorville: Current offers stand at the January 17th low of 0.7505 with furthered bias at 0.7515.  Comparatively, the underlying has been underpinned by bids at 0.7445 with stops below at 0.7430.

NZD/USD

Rate Hikes Less Likely: Fourth quarter inflation climbed 0.7 percent for the New Zealand economy, less than the previously expected 0.8 percent expected by the market.  Although falling an incremental 0.1 percent against consensus, the rate sparked speculation of weakening inflationary pressures in the economy as many suspect crude oil and energy prices as underlying the current rise and acting as a temporary shock to region.  Fuel prices declined 3 percent in the quarter pushing the figure slightly lower.  Subsequently, whispers of a near term rate cut flowed through the market as the country's economic growth remains questionable and consumer interest continue to thin.  Nonetheless, with the overall annualized figure still remaining above the 3 percent target established by Governor Alan Bollard, bears are looking ahead to the upcoming retail sales report.  Although expectations are for a 0.4 percent rise, the figure looks to remain weak adding to today's rate cut speculation and downside pressure on the major.

Technically Speaking: Penetrating the floor established by yesterday's consolidation, downward momentum resumed with both 10 and 20-hour moving averages placing heavy pressure from the topside.  Adding to bearish downside is the steep dip in the Stochastic.  However, at this point, the oscillator looks slightly oversold and hinting a near boost through a nascent golden cross.  Should the cross solidify, the pair looks to test 0.6864 (10-hour MA) and 0.6875 (20-hour MA) before finding considerable resistance at 0.6890 (previous floor break).  Heading into the Asian session, continued bearish declines can be expected as the pair continues on its longer term channel direction, currently finding a floor at the 50-day moving average at 0.6856.

Rumorville: With support bids from the U.S. session broken at 0.6780, stronger bids will come into play at 0.6830/35 (daily lows from January 4,5,6).  Comparatively to the upside, offers remain strong at 0.6950 with shorter terms in the 0.6885/90 arena.

Richard Lee is a Currency Strategist at FXCM.