• GBP/JPY -0.6%
• AUD/USD +0.6%
• AUD/NZD +0.5%

GBP/JPY

Inflation Becomes A Head Turner: Pound traders took to the hills as further weakness loomed over the underlying sterling spot.  Sparking the exacerbated decline was headline consumer price data for the month of January.  Dipping below the 2 percent benchmark target, consumer prices only rose 1.9 percent on an annualized basis, furthering the possibility of an interest rate cut in the near term by policy makers.  The recent figure sheds a negative light as it is suggestive of two key points that were formed in 2005.  First, it proves that crude oil served merely as a temporary shock to the overall economy revealing that inflationary pressures were not permanent as previously gauged.  Even with energy costs sliding a bit, the current CPI also is suggestive that manufacturers continue to take the brunt of rising costs in order to lure shoppers.  This reveals, and subsequently confirms, lessened demand.  Ultimately, further focus will be placed on tomorrowââ,¬â"¢s quarterly inflation report by central bankers.  Should further dovish notions arise in the report, heavy pressure looks to be exerted on the underlying major price action.  Separately, fueling some yen bullishness, department sales rose 0.1 percent.  Although much less than the previous figure, the current read is consistent with positive gains. 

Rumorville: With heavy speculation ringing true earlier this morning, current offers look to keep the sterling leg under pressure.  Selling interest looks to reside above at the 1.7360/65 region (current spot) with stops above at 7375.  Keeping yen bid, buyers are taking opportunities at the 117 figure with heavier considerations above at 117.20.

AUD/USD

Conditions Continue Further AUD Growth: Spurring Australian dollar bullishness today was an upbeat Australian business confidence report in the overnight.  Contrary to an overall negative conditions survey, which declined further from a climb in December, business owners grew increasingly confident in the month as a severe correction seemed less and less likely to occur.  The survey itself surprised market participants when the actual figure jumped from a previous reading of 6 to an optimistic 10 print.  Confidence remained high in the mining sector on increasing demand from both China and global foreign trade partners.  With business conditions remaining relatively in line, in addition to yesterdayââ,¬â"¢s hawkish statements by the Reserve Bank of Australia, underlying bidding should emerge as it becomes clearer that the current 5.5 percent rate will stay.  With subsequent reports thin, traders would be wary of further dollar based data during the week in spurring further directional bias.  

Rumorville: Bids currently forming support at 0.7350 with further considerations below at 0.7360.  With offers broken to the upside and stops tripped, further selling interest at 0.7420 could provide interim resistance till London open.

AUD/NZD

Aussie Favorite Over Kiwi: With the Australian dollar bid during the session, subsequent Kiwi selling emerged in light of higher uridashi volume for the year.  Even with issuance reaching highs, traders sold off the underlying major as retail sales seemed to have stalled in the New Zealand economy.  Expected to rise incrementally by 0.3 percent, sales in December were unchanged after jumping 0.8 percent.  Crimping consumer demand looks to be higher interest rates as Governor Ian Bollard has raised the benchmark cash rate to 7.25 percent effectively raising the cost of cash.  As a result, with consumer demand a key factor in overall economic growth, traders remained concerned of future growth scenarios given the weakness seen in the overnightââ,¬â"¢s figure.  Looking ahead, further downside looks imminent for the underlying Kiwi dollar as attention turns to producer prices.  Should the report be released to the downside, expectations may arise of a potential rate cut scenario.  Comparatively, with a continued climb by copper, a base metal export of Australia, further upside in the futures contract should fuel the cross pair higher.   

Rumorville: Kiwi bidding looks shallow, providing nothing for the major leg to depend on.  Current bids are below at 0.6680 with current spot at 0.6763.  Stops are located just under at 0.6680 with no notable offers to prevent a retracement in the underlying.

Richard Lee is a Currency Strategist at FXCM.