The Australian dollar fell sharply to lows below the 0.85 level against the dollar before secured a tentative recovery back towards 0.86 in volatile trading. The Australian currency moves were linked strongly to global interest in carry trades and the degree of confidence in global stock markets.
The retail sales data was strong with a 1.4% monthly increase for June. There were also strong readings for building approvals and credit growth. The firm data increased expectations that the Reserve Bank would increase interest rates again to 6.50% in August.
The trade deficit increased sharply to AUD1.75bn for June as unfavourable weather conditions undermined export shipments, although there was also evidence of a slowdown in underlying export growth.
Yield considerations will protect the currency, but it will be difficult to regain momentum in the short-term and the underlying tightening of credit conditions will limit the scope for renewed gains.
Canadian dollar
Canadian volatility remained generally high over the week. The local currency dipped to lows around 1.07 against the US dollar before a recovery back to near 1.0550. There was little in the way of economic data during the week to influences the Canadian dollar
The Canadian currency drew support from the high level of oil prices with crude trading close to record highs while merger-related capital inflows continued.
The Canadian dollar was influenced by carry trades with the currency weakening when the yen strengthened as funds moved out of Canadian currency. A recovery in risk appetite helped support the Canadian dollar later in the week.
Confidence in the economy should underpin the Canadian dollar, but there is likely to be tough resistance below the 1.05 level, especially with greater reservations over carry trades.
Indian rupee
The Indian rupee has traded within relatively narrow ranges during the week despite an underlying increase in market volatility. The rupee has generally been able to hold close to the 40.50 level against the US dollar and edged stronger to 40.38 on Friday.
The rupee dropped on Wednesday as the local stock market fell by 4.0%, but the currency still proved to be resilient with continuing underlying investment inflows.
The central bank left interest rates unchanged at the last meeting, but increased the cash reserve requirements and this tended to put upward pressure on local money market rates which underpinned the rupee.
The Indian currency was still unsettled by the high level of oil prices while fears over central bank intervention also curbed gains.
The underlying capital inflows will continue to support the Indian rupee in the short-term, especially if local interest rates increase. Nevertheless, there is the risk of a significant correction weaker given evidence of investor complacency.