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Markets were skittish on Wednesday, with various rumours doing the rounds and causing more nervousness regarding the prospect of Fed tapering next week. The Aussie took most of the pain, with the Swissie and yen holding their ground. EURCHF is now at levels last seen in the early part of May and having gained nearly 3% so far this month on the dollar. The price action encompasses our broader view for next year, namely that Fed tapering will be bullish for the dollar, but not overwhelmingly so. Near-term, the Aussie continues to look the most vulnerable, simply because their central banks wants to see a weaker currency and there is scope for the RBA to lower rates further in 2014.

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Data/Event Risks

USD:  Retail sales the main focus, with the market expecting a modest rise of 0.2% in the ex-autos measure (same as October). Weekly claims are seen moving higher from the dip below 300k seen last week. The dollar remains nervous so the data could do have an outsized impact, especially if away from expectations.

Latest FX News

NZD:  No surprise to see rates steady after the central bank meeting yesterday, but expectations of a move early next year increased, the governor underlining that the RBNZ would “increase the cash rate as needed”. The kiwi bounced modestly, with an overnight high of 0.8292. AUDNZD moving lower to 1.0891, continuing the bearish trend that has been in place from March.

EUR:  French CPI data in line with expectations early on today, rising at 0.7%. More inflation is seen today. The euro at 1.38 and this is currently the 8th consecutive daily gain for EURUSD. Note that upcoming stress tests continue to offer support, banks both repaying loans to the ECB and repatriating funds from overseas, which creates the risk of a new year hangover for the euro.

AUD:  Employment data was better than expected overnight, with a 21k rise in November, expected was 10k. The unemployment rate held steady at 5.8%. The Aussie was initially firmer, up to the 0.9080 level, but fell back to a low of 0.9011 thereafter, underlining the tendency for rallies to be sold.

Further reading:

2014: Global Currencies Outlook

AUD/USD: Trading the Australian Employment Change