Although the Australian dollar had a slightly weaker tone over the week, it found support close to the 0.8650 level against the US currency before regaining some ground late in the week with a move back above 0.8750.
The Reserve Bank of Australia left interest rates on hold at 6.75% following its latest policy meeting. The bank also expressed some doubts over 2008 growth trends and markets were less confident that interest rates would be increased again next year.
Third-quarter GDP growth was 1.0% as demand remained solid to give a 4.3% annual increase. The trade deficit rose sharply to a record AUD2.98bn for October from AUD1.70bn previously as exports dipped sharply over the month.
The Australian dollar will look to gain support on yield grounds, especially when risk tolerances improve. Domestic and international growth doubts will restrict the potential for currency gains with volatility a persistent risk.
Canadian dollar:
The Canadian dollar drifted weaker ahead of the Bank of Canada's interest rate decision. The currency weakened to lows beyond 1.02, the lowest level since the second half of September before consolidating around 1.01.
Following the Bank of Canada monetary meeting, interest rates were cut by 0.25% to 4.25% due to expectations of weaker growth. The bank stated that forthcoming data releases would be monitored closely in determining future decisions.
The PMI index strengthened to 58.7 in November from 57.1 the previous month which alleviated immediate fears over a sharp downturn in the economy. There was also a sharp recovery in building permits for October.
Bank of Governor elect Carney rejected the possibility of a peg with the US dollar. The central bank expressed relief that the Canadian dollar had retreated back towards the central bank's assumed trading range for the currency.
Expectations of a growth slowdown and further interest rate cuts will curb Canadian currency demand. It should be able to resist heavy selling from current levels.
Indian rupee:
The rupee was confined to relatively narrow ranges over the week with contradictory pressures. There was a slight strengthening trend as risk aversion eased and the currency edged slightly stronger to 39.46 against the dollar on Friday.
The rupee gained support from strength in global stock markets which encouraged a renewed inflow of funds into Indian markets after outflows during November.
This support was offset by general US dollar resilience over the week which curbed short-term selling pressure on the US currency.
The rupee will gain some further support if risk aversion eases on a sustained basis. The currency is still unlikely to secure more than limited headway in the short-term.