Australian Import Price Index (4Q) (00:30 GMT; 19:30 EDT)
                         (Imports)               (Exports)
Consensus:         -1.7%                      1.0%
Previous:             -0.3%                      1.9%

Outlook: Soft commodity prices are expected to have had a depressing effect on both Australian import and export indices over the fourth quarter. Economists predict the average costs for Australia’s imports dropped 1.7 percent, while it’s the prices for exports slowed to 1.0 percent growth in the final three months of 2005. Key in the predictions for the index of foreign goods consumed is the marked decline in energy prices over the period. On the NYMEX, oil prices dropped 13.9 percent through the quarter alone, while spending most of the time consolidating around $60 per barrel. Following the steady decline from September’s high, crude actually lost 22 percent for a more realistic gauge of the difference between the two periods. Another reliable indicator for the import price gauge is New Zealand’s own consumer price gauge. Inflation in the island nation contracted for the first time in six years, partially because of cheaper imports. Back at home, October and November’s trade report give a mixed picture. In the first month of the quarter, imports marked a record A$19.31 billion. However, a contraction in fuel and machinery costs and demand caused total imports to slip 3 percent the following month. The Import Price Index will be closely watched by policy makers and rate speculators for clues to inflation levels, and to more importantly formulate reliable forecasts for the next week’s consumer price gauge for the same period.

Previous: Australian import prices contracted for the first time in six quarters in the three months through September. In the third quarter, the average price for imported goods eased 0.3 percent. From the breakdown in the product summary, the declines were rather evenly diverse. The biggest drop was seen in beverages and tobacco, which dropped 7.1 percent. Elsewhere, animal and vegetable oil prices sank 4.0 percent; food and live animal costs shrank 1.2 percent for the first slip since the first quarter of 2005; and machinery and transport goods lost 0.8 percent value. The most interesting group from the body of data was 1.0 percent cooling in fuel prices. The price of crude in New York averaged $70.60 in the third quarter. Over the following three months, the average price of the precious resource was $60.16, suggesting the energy group will likely have a greater negative influence in the more recent measurement.

UK Retail Sales (DEC) (09:30 GMT; 04:30 EDT)
                         (MoM)                    (YoY)
Consensus:         0.6%                       3.2%
Previous:             0.3%                      3.2%      

Outlook: UK retail sales look to gain for a third consecutive month, as economists expect strong pre-holiday sales to bring similarly robust performance through December. The most recent British Retail Consortium (BRC) report echoes such a sentiment, with same-store year-over-year sales growing by an impressive 2.5 percent. Though the BRC report is seen as a slightly less accurate measure of retail growth, the report generally moves in lockstep with the broader Office for National Statistics (ONS) figure. As such, consensus estimates of a 0.6 percent month-over-month gain fall within reason, and may in fact leave risks for an upward surprise. It remains to be seen what effect this may have on currency markets, however, with traders clearly pricing in strong UK economic data moving forward.

Previous: Domestic retailers saw a 0.3 percent monthly gain in sales through November, as officials cited early holiday spending as supportive of overall purchase volume. The report was enough to improve outlook on the health of UK growth, causing synthetic interest rates to price in a higher likelihood of a rate hike through the first months of 2007. As we know now, such speculation was very much supported by later fact, as the Bank of England shocked financial markets by raising rates through its most recent meeting. Given that markets now expect a further 50 basis points of rate hikes through year-end 2007, traders must hope that tomorrow’s retail sales produce a similarly bullish print.

University of Michigan Consumer Confidence Survey (JAN P) (15:00 GMT; 10:00 EDT)
Consensus:         92.0
Previous:            91.7

Outlook: Consumer sentiment is expected to improve according to the market’s consensus for the preliminary read of the University of Michigan’s confidence survey. Should the indicator print at 92.0 as predicted, the print would mark the first increase in the survey in three months. More than a few periphery indicators are fueling expectations for an increasingly optimistic disposition this month. Last month’s spending indicators are being read as a vote with pocketbooks. For the holiday shopping season, retail sales rose 0.7 percent in November and 1.0 percent in the following month – the latter was an 11 month high. Another factor likely cheering the fastidious American consumer was the easing in energy prices. From raw crude to refined heating oil and gasoline prices, a steady rise in supply has allowed for a broad easing. Finally, the most encouraging pick-me-up for consumers is probably employment trends. American firms took on a net 167,000 new hires last month, which the most in three months. What’s more, wages for the period grew by the most in eight months. From an annual perspective, average earnings growth has topped 4.2 percent. Even the weekly claims number, which is more current, is pointing to an extension of the strong labor trends. Initial filings for unemployment benefits for the week ending January 13th fell to 290,000 applications – the fewest in 11 months. If consumer sentiment is able to match the strength reported in wage and employment data, the lone sector could steer the economy higher going into 2007.

Previous: American optimism slipped for the second month in a row, even though the University of Michigan’s sentiment gauge was still near its highest levels for the year. December’s confidence survey printed a 0.4 point drop from the previous month with a 91.7 figure. Breaking the survey own into its few parts revealed expectations, used as a forecast of spending activity in the months ahead, actually slipped from 83.2 in November to 81.2. The modest dimming of overall confidence came from a slight rise in gasoline prices over the month and the loss of home equity as the housing market continues to loose its luster. However, stubborn labor and wage trends are working well to keep a smile on the consumer’s face. Even inflation expectations for the year ahead have stepped down once again to a 2.9 percent; the first time this component has dipped below 3.0 percent in over six months.

John Kicklighter is a Currency Strategist at FXCM.