This month’s five best performers among 16 major exchange rates are all affiliated with resource-driven economies as investors unwind bets on declines versus the dollar. Brazil’s real leads with a 4.1 percent gain, while a Bloomberg index of seven commodity currencies has rallied 1 percent from last month’s 2.9 percent slide, which was the most since 2011.
The resilience of commodity-linked currencies comes as growth stalls in China, which buys everything from New Zealand’s milk to Brazil’s iron ore, suggesting a delinking from the world’s second-largest economy. Strategists are raising their forecasts after the dollar fell against all but one of its most-traded peers in February and as Citigroup Inc.’s U.S. Economic Surprise Index touched the lowest in more than seven months.

“Investors came into this year thinking they knew the story -- that U.S. data would be good,” Steven Englander, the global head of Group-of-10 currency strategy at Citigroup in New York, said in a Feb. 25 phone interview. “Those expectations were very badly disappointed, and now short commodity-currency positions have to be unwound.” A short position is a bet an asset will decline in value.
Citigroup increased in February its year-end estimate for the Australian dollar to 91 U.S. cents, from 85 last month. The second-biggest currency trader also sees New Zealand’s dollar rising this year, to 85 U.S. cents. The Aussie bought 89.58 U.S. cents and the kiwi 84.08 cents as of 8:48 a.m. in London.

Commodities Jump

The Norwegian krone strengthened 3.8 percent versus the dollar this month, the most among major currencies after the real and kiwi, which rose 4 percent. Rounding out the top five, South Africa’s rand appreciated 3.8 percent and the Aussie was up 2.4 percent.
Economists are rushing to keep up with the moves, boosting first-quarter forecasts for the rand, real, kiwi, Canadian dollar and Chilean peso by an average of 1 percent since the start of the year, according to data compiled by Bloomberg.
Commodities, which are priced in dollars and tend to rise as the currency cheapens, have jumped in February. The Standard & Poor’s GSCI Official Close Index has advanced 4.1 percent, its biggest gain since July, while crude-oil futures climbed 4.7 percent, touching a four-month high of $103.80 per barrel in New York on Feb. 19.

Chinese Slowdown

Citigroup’s Economic Surprise Index for the U.S. fell to minus 14.6 on Feb. 25, the lowest since July 15, as economic data from jobs and manufacturing to retail sales trailed forecasts. The gauge’s average over the past year is 17.
China is seeing signs of a manufacturing slowdown, with a gauge of factory output missing economists’ forecasts on Jan. 29, a week after an initial estimate triggered the biggest developing-nation currency slump in five years.
China’s $4.8 trillion of shadow-banking debt, which occurs outside the regular banking system and often beyond the control of regulators, also raises concern that economic shocks will cloud the growth outlook for a country that’s the biggest trade partner for Australia, Brazil and South Africa. The currencies of those countries have increased by an average of 3.4 percent against the greenback in February.

Risk Appetite

“People are dismissing any uncertainties about China,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a Feb. 26 phone interview. “They’ve got confidence that global growth will gradually accelerate, which is a risk-positive scenario that’s particularly good for commodity currencies.”
Declining volatility has reduced the risk of unexpected price moves, making it more difficult for traders to make money in foreign exchange and prompting them to more aggressively seek the higher yields offered by commodity-linked assets.
JPMorgan Chase & Co.’s Global FX Volatility Index fell to 7.64 percent on Feb. 25, the lowest close since Oct. 28 and down from a 2014 high of 8.98 percent on Feb. 3. Average implied volatility for the seven commodity currencies included in Bloomberg’s index fell on the same day to the lowest level in more than five weeks.

‘Key Driver’

“The stability that we’ve seen in foreign-exchange markets in February has been a key driver for emerging-market or commodity currencies,” Hamish Pepper, a currency strategist at Barclays Plc in Singapore, said in a phone interview yesterday. “Commodity currencies have a correlation with risk appetite. Whenever you get periods of stability and improving sentiment, these are the currencies that historically do well.”

* Currency traders suspended, fired amid FX rate rigging probe
* Banks reluctant to hire lest replacements also tainted
* Forex a major source of income already under regulatory pressure
* Suitable staff already scarce as automated trade thins talent pool

By Patrick Graham and Clare Hutchison

LONDON, Feb 21 (Reuters) - A void is appearing in the upper reaches of the world's biggest and most powerful financial market as banks struggle to replace currency traders suspended or fired during a global investigation into allegations of foreign exchange rate-rigging.
Recruitment firms and sources at some of the banks at the centre of the probe say there is huge reluctance to hire externally because replacements could be tainted by allegations of collusion themselves.
That leaves managers with the choice of promoting more junior staff into powerful chief and senior dealer positions or appointing staff from other units of the bank who are less familiar with the daily workings of the $5.3-trillion-a-day forex market.

While the hiatus may be temporary as the investigation unfolds, it comes at a time when machine-driven algorithmic models have already replaced around two thirds of the spot FX dealers operating in London a decade ago, and there are growing concerns about staffing numbers in the industry.

The financial impact for the banks remains unclear, but it adds pressure on a major source of income that is already suffering from a wave of regulations clamping down on the amount of risk dealers can take.
With prospective bans on proprietary trading spelling a change in how lenders do business, the fallout from the scandal further clouds the outlook for many department managers.
"Certainly it might only be 20 people so far who have been suspended, but it has created one hell of a cloud above the industry," said one well-known headhunter in London, who also declined to be named.
"We have had calls from people who haven't been in the market for a while who think there might be opportunities for them. But I think it's very difficult. Until more decisions are made, there is going to be a little bit of a stand-off."
Regulatory authorities are looking at whether traders at some of the world's biggest banks colluded to manipulate benchmark foreign-exchange rates used to set the value of trillions of dollars of investments.
Banks have taken action against 21 traders, and financial institutions including Royal Bank of Scotland, Deutsche Bank and UBS are now said to be reviewing the rules governing how traders make bets with their own money.

All of the banks who have taken action against traders since the start of the probe declined to comment or had no immediate comment on the resulting recruitment and operational issues.
LONG PROBE
Among other things, industry players say investigators will have to trawl through millions of chatroom conversations and other correspondence for dozens of traders, potentially including some who have since moved on to other jobs.

The head of Britain's FCA financial sector overseer has said its probe is likely to drag on into next year, leaving the banks nervous about hiring anyone with a history of trading at a major institution.
"This is not any sort of downsizing, so all these people will need to be replaced," said a senior manager in foreign exchange at one bank in London, who asked not to be named.
"But banks will need to be extra careful when they look at candidates' history, whether it is internally or externally. Certainly if you are a bank and you want to hire a high flier from another bank, you have to think twice."

The headhunter said banks' other practical problem for the moment is that most of the disciplinary action so far has been in the form of suspensions rather than outright dismissals.
"If you are a big bank who has someone suspended at this time, until a definitive decision is made it's very difficult to go out and hire people purely to fill in a space for someone who is only suspended," he said.
"We can all hazard a guess as to what is going to happen to anyone who is suspended, but we don't know."
A handful of top banks control the multi-trillion-dollar market tied to the benchmark exchange rates. The top five FX dealing banks see around half of the forex market's average daily flow, and the top 10 banks account for almost 80 percent.

DIFFERENT SKILLS
London-based recruiters say the spot FX market in major currencies in the city adds up to around 125-150 dealers at 25 banks - as little as a third of its size a decade ago.
"Electronic solutions are coming in and doing the job that people used to do. The banks also are not taking the same amount of risk, so there is less of a requirement for people, and increasingly it's a different skill set," the headhunter said.

"Banks more and more are just offering an execution service to clients. The rules on (limiting or banning) proprietary risk-taking are making the banks into a different model now which can require a different kind of trader."

A separate investigation last year into rate rigging in another major centre, Singapore, found 133 traders tried to manipulate lending and foreign exchange reference rates, many of whom banks have struggled to replace.
Adriana Swift, Head of Capital Market Sales and Trading at financial recruitment firm Selby Jennings, said those involved would find it hard to move into other parts of the business and will often be forced to change career, unless they are at a junior level and formally cleared of any wrongdoing.
"People generally don't want to hire FX dealers for sales and trading roles in other asset classes because they want people with experience in the sector they're hiring into," she said.

SYDNEY, Feb 17 (Reuters) - The U.S. dollar languished at six-week lows against a basket of major currencies on Monday, still struggling to get over yet more disappointing U.S. economic news that stood in contrast to better data out of the euro zone and China.

The dollar index traded at 80.100, having slumped to 80.065 -- a low not seen since Jan. 1. Traders said Friday's close below 80.153, the Jan. 24 trough, could pave the way for further downside.
The euro touched a three-week high of $1.3717, while sterling scaled a four-year peak of $1.6776.
Data on Friday showed both Germany and France grew slightly faster than expected in the fourth quarter, pushing the euro zone's recovery up a gear.

U.S. manufacturing output, by contrast, unexpectedly fell in January but that outcome was again blamed on bad weather.
The run of soft U.S. data seemed to have affected the market's expectation regarding the Federal Reserve's tapering path, analysts at Barclays Capital wrote in a note to clients.

"The market could continue to price in a small possibility of Fed halting the tapering while the U.S. data remains soft," they said.

"But we think the Fed will likely look through the near-term softness in the data and continue to reduce asset purchases by $10 billion in March, as suggested by Fed Chair Yellen's remarks during her testimony to the Congress, which should be USD supportive."

Latest data showed currency speculators have indeed pared bets in favour of the U.S. dollar in the week ended Feb. 11.

Still, it was the 15th straight week in which speculators held net long positions in the greenback, reflecting a wider belief that the Fed will probably continue to wind back its extraordinary policy stimulus this year.
Commodity currencies such as the Australian dollar were also in favour after Chinese lending data on Saturday suggested the world's second biggest economy may not be cooling as much as feared.
Analysts though warned the data could be distorted by the Lunar New Year holidays in January. China is the biggest export market for both Australia and New Zealand.
The Australian dollar hit a fresh one-month high of $0.9070 , before relinquishing a bit of ground to last stand at $0.9050.

It's New Zealand counterpart also scaled a one-month peak of $0.8396 but quickly retreated to $0.8364 after local retail sales data missed lofty forecasts.

NEW YORK, Feb 14 (Reuters) - Euro zone growth numbers on Friday topped forecasts and helped push the euro to a nearly three-week peak against the dollar, which slid for a second straight day on accumulating worries about U.S. economic growth.

The dollar index of six major currencies on Friday slid to a low of 80.065, its 2014 bottom so far, and was last at 80.199, down 0.16 percent.

Britain's sterling rose to its highest in over five years against a basket of currencies, helped by a sharp rise against the dollar for four straight days. In late New York trading, the pound was up 0.5 percent against the dollar at $1.6739.

The dollar was down 0.28 percent against the yen at 101.87 yen and off 0.2 percent against the Swiss franc at 0.8918 francs to the dollar.

U.S. economic data has been dampened by a rough North American winter, disappointing many investors throttling back on dollar investments, according to analyst Joe Manimbo at Western Union Business Solutions in Washington.

"Until U.S. growth starts to show more promising potential, the dollar could be at risk for further slippage," Manimbo said in a commentary.

"The dollar is having a bad day," said Lane Newman, director of foreign exchange at ING Capital Markets in New York. "A lot of it has to do with positioning involving the euro."

The euro flirted with the $1.37 level, the top of the daily Ichimoku cloud, a technical measure of support and resistance which is significant for chartists. A close above that level could provide support to send the euro even higher. The euro was at $1.3699 in late trade in New York.

The single currency rose as high as $1.3715 after slightly stronger-than-expected growth in Germany and France pushed euro zone fourth-quarter GDP up 0.3 percent, above a forecast of 0.2 percent.
The data bolstered hopes the European Central Bank was less likely to take anti-deflation action next month and contrasted with a Washington report that U.S. manufacturing output during January marked its biggest monthly drop in 4-1/2 years.

The euro zone data is likely to help reduce expectations that the ECB will cut interest rates at next month's meeting, after President Mario Draghi last week declared more information was needed before deciding on any action.

"When you see better growth data the market quite simply thinks there's less chance of deflation and less chance of Draghi taking action, which is currency-supportive," said Jane Foley, senior currency strategist at Rabobank.

She said she expects no ECB action next month as Draghi will take "a few months at least" to assess the inflation data.

The Australian dollar was in focus after it dropped one full U.S. cent on Thursday in the wake of surprisingly weak labor data. It rebounded on Friday by 0.6 percent to $0.9033 helped by data showing China's consumer prices rose 2.5 percent in January, broadly in line with expectations.
China is Australia's main export market and the Aussie dollar is often used as a liquid proxy for investor bets on the Chinese economy.

* BoE could be first major central bank to tighten policy
* Euro hurt by Coeure's comments at Reuters Summit
* Dollar gets some second-day lift from Yellen

By Michael Connor
NEW YORK, Feb 12 (Reuters) - The British pound moved up to a two-week high against the dollar on Wednesday after the Bank of England hiked economic growth forecasts and hinted Britain may raise interest rates next year.

Prospects of a rate hike in the second half of 2015 also prompted investors to buy sterling against currencies like the euro, the yen and the Swiss franc .

"It's a sterling day," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
But the dollar also rose broadly, in part because new Federal Reserve Chair Janet Yellen on Tuesday showed no sign in congressional testimony of slowing a wind-up of a massive bond-buying stimulus program now running at $65 billion monthly.

"It made it seem like the Fed is no longer data dependent on tapering," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York. "The market had been hoping she might be more dovish."

Steady cuts in the Fed's quantitative easing campaign, like the two $10 billion reductions already taken, suggest increases in U.S. interest rates are likely to be sooner rather than later, Borthwick said. Higher U.S. rates would lift demand for dollars.

The euro fell more than 1 percent against sterling and was softer against the dollar, in part because of Yellen's testimony, Borthwick said.

Sterling jumped to a two-week high of $1.6587, up 0.8 percent on the day, and well above the $1.6480 registered before the BoE said interest rates could start rising from record lows in little more than a year.
"The BoE seems to become the first major central bank, bar the Reserve Bank of New Zealand, to hike interest rates," said Chris Turner, chief currency strategist at ING. "We are expecting a rate hike in February 2015, so in the short term sterling looks good, especially against the euro."
Against the dollar, the euro was down 0.33 percent at $1.3592 ; against the yen, it was down 0.50 percent at 139.245 yen.

The euro was also hurt by weak economic data and comments from ECB Executive Board member Benoit Coeure, who told a Reuters Summit the bank was "very seriously" considering a negative deposit rate. The rate, at which banks park surplus funds with the central bank, is now zero percent.
Industrial output for the euro zone in December fell 0.7 percent on the month, after a downwardly revised 1.6 percent rise in November and much sharper than a 0.3 percent fall forecast..
The euro's losses helped lift the dollar index 0.06 percent to 80.699, pushing it above a two-week low of 80.448 after being as high as 80.831.

Earlier, the Australia and New Zealand dollars hit one-month highs as improved Chinese trade data eased concerns about growth in the world's second-biggest economy and bolstered demand for riskier assets.
China's trade performance beat forecasts in January as import growth hit a six-month high, which soothed recent fears that the world's second-largest economy is slowing down. China is Australia's biggest export market.

The Aussie dollar hit a high of $0.9068, its strongest level since Jan. 13, before easing to trade at $0.9039, flat on the day.
The New Zealand dollar also retreated in late trade after hitting a one-month high of $0.8370 and stood nearly unchanged for the day at $0.8320 in New York.

The dollar fell to its lowest level in almost two weeks on Tuesday ahead of congressional testimony by new U.S. Federal Reserve chief Janet Yellen that could give clues on how quickly the Fed will cut back its stimulus programme.

The Australian dollar rose to its highest point in almost a month, helped by an upbeat business survey and by buying from hedge funds, who have been betting against the Aussie for months but who are now taking profits, said traders.

Volumes were low due to a holiday in Japan and a lack of major economic data, holding most currencies inside recent ranges.
Investors' focus on Tuesday will be Yellen, who faces her first public test as chair of the world's most powerful central bank.
She will have to deal with questions from U.S. lawmakers, some hostile to the central bank, who will want to know how committed she is to winding back exceptional stimulus measures.
Her testimony comes at a tricky time given two months of soft employment growth and as a deadline looms on raising the U.S. government borrowing limit before a possible debt default.
Analysts generally assume Yellen will reiterate the Fed will continue tapering its asset buying, as long as the economy improves as expected, while reaffirming a commitment to keeping rates low for a long time to come.
"A lot will hinge on today," said Simon Smith, FxPro's head of research.
"She's known as a dove, but it's the first time the question (arises) of whether she wants totally to continue this line from her predecessors or shake things up. I don't think she will (shake things up), but it's a bit of a risk event for the dollar."
Analysts at Societe Generale predicted a "steady as she goes" message.
The dollar index fell as low as 80.498, its lowest in almost two weeks, and was last down 0.2 percent at 80.525. The euro rose as high as $1.36835 - also its highest in nearly two weeks - in Asian trading.
However, the dollar was up 0.2 percent against the Canadian dollar - a currency that many hedge funds have been betting against - at C$1.1080.
The Aussie rose 0.8 percent to $0.9016 while the New Zealand dollar gained 0.5 percent at $0.8310.
National Australia Bank's measure of Australian business conditions on Tuesday rose to its highest in nearly three years in January.

The Aussie has been supported in recent days by comments from the central bank, which last week all but shut the door on further rate cuts, citing improving economic conditions and a pick-up in inflation.
But while hedge funds were buying, there was also nervousness ahead of unemployment data on Thursday, which some fear could be poor. On Monday Toyota said it would stop making cars in Australia, at loss of about 2,500 jobs, by 2017.
There was probably some stop-loss buying at levels above $0.9000 that added to the Aussie dollar's earlier rise, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Last week was a good end for the pound against many of the major currencies spiking to 1.22 against the Euro and up to 2.04 against the NZD which was the highest rate since June 2012.

Today we have seen the pound fall against both of the above currencies after positive manufacturing data out of Germany with sterling back down to a low of 1.2045 against the Euro and     2.0080 against the Kiwi Dollar.

For those of you looking at selling the pound we may see a fall for sterlin over the course of this week should the data continue to be positive for the Euro zone and negative for the UK. The one thing that would concern me if you are buying the Euro, Kiwi Dollar or any of teh majors were comments by the Governor of the Bank of England. He stated they have to look at all factors of the economy and not just the unemployment rate before deciding when to look at hiking interest rates. Thsi gives them scope to choose when they wish to raise interest rates.

This week’s interest rate decision will now be closely watched by the markets to see how many members vote for an interest rate hike when the minutes are released two weeks later. If the Governor tries to talk down interest rates any further then you may find sterling dip lower. My prediction is that we won’t see a rate hike until 2015 so we may have a long time to go before we see real strength for the pound.

If you are looking at selling Euros to buy GBP then we may get a good window of opportunity to secure your funds this week if the market continues the trand seen today.

Verbal intervention from Japan's neighbors this week may have contributed to the bounce in the Japanese currency against the won, yuan and U.S. dollar on Friday. The yen traded at about 104.36 to the greenback, off this week's five-year low around 105.44.

In early 2013, talk of currency wars, triggered in part by the yen's sharp fall, dominated currency markets. That was before another big theme of 2014 emerged – talk of an unwinding of U.S. monetary stimulus.
"It's really the yen crosses that we'll see a lot of the big moves in this year," Michael Woolfolk, managing director and senior currency strategist at BNY Mellon in New York told CNBC Asia's "Squawk Box."
"It should put a lot of pressure on the emerging Asian currencies. We think they will push back, that there will be an escalation of currency wars and intervention is the most likely route," he added.
The yen declined almost 22 percent against the dollar last year against a backdrop of aggressive monetary easing by the Bank of Japan and broad strength in the U.S. currency on talk of Fed tapering. It was the worst performing major currency of 2013.

(Read more: Abenomics scorecard: A for early initiative, 'C' for follow-through)
"The yen/won movements have not hit exporters significantly, but it does look like they [the South Korean authorities] are taking a pre-emptive approach so the noises they've made this week are not unusual," said Mizuho Corporate Bank Market Economist Vishnu Varathan.

"We're not looking at exceptionally strong currencies across emerging markets, so I think it will be just the export-focused north Asia that continue to make noise about their strong currencies," he added.

Predicting the next move in the markets is the key to making money in trading, but putting this simple concept into action is much harder than it sounds. Professional forex traders have long known that trading currencies requires looking beyond the world of FX. The fact is that currencies are moved by many factors - supply and demand, politics, interest rates, economic growth, and so on. More specifically, since economic growth and exports are directly related to a country's domestic industry, it is natural for some currencies to be heavily correlated with commodity prices.  Other currencies that are also impacted by commodity prices but have a weaker correlation are the Swiss franc and the Japanese yen. Knowing which currency is correlated with what commodity can help traders understand and predict certain market movements. Here we look at currencies correlated with oil and gold and show you how you can use this information in your trading.

The three forex pairs which include currencies from countries that possess large amounts of commodities. The commodity pairs are: USD/CAD, USD/AUD, USD/NZD. These pairs are highly correlated to changes in commodity prices, therefore traders looking to gain exposure to commodity fluctuations often take advantage of these pairs.

Although there are many countries with large natural resource and commodity reserves, such as Russia, Saudi Arabia and Venezuela, the commodities of many of these nations are usually highly regulated by their domestic governments or thinly traded. The Canadian, Australian and New Zealand dollars are traded at high volumes and are therefore very liquid in the forex market.

Commodity Pairs Analysis

AUD/USD ( Australian dollar / U.S. dollar )

Because Australia is the world's third largest exporter of gold, the Australian dollar has an 80% positive correlation with this metal. If you believe the price of gold will continue to increase, you could favor a commodity-based economy like Australia because if gold rises, the Australian Dollar is very likely to follow it's lead.

1) If you think Gold will keep rising, it might be a good strategy to buy the Australian dollar because it's 80% positive correlation to Gold.

2) Since the AUD/USD pair tends to be highly correlated to gold, it might be a good idea to compare both AUD/USD and gold charts in order to predict future moves.

NZD/USD (New Zealand dollar / U.S. dollar)

The health of New Zealand's economy is closely tied to the health of the Australian economy. This explains why the New Zealand dollar and the Australian dollar have had a 92% positive correlation over the past four years (2003-2006). The New Zealand dollar has an even stronger correlation with gold than the AUD/USD does - the correlation has been approximately 88% over the past three years. If you believe the price of gold will continue to increase, you could favor a commodity-based economy like New Zealand because if gold rises, the New Zealand dollar is overly likely to follow it's lead.

Trading Ideas

1) If you think gold will keep rising, it might be a good strategy to buy the New Zealand dollar because it's 85% positive correlation to gold over the past years.

2) Since the NZD/USD pair tends to be highly correlated to gold (together with the AUD/USD), it might be a good idea to compare both NZD/USD and gold charts in order to predict future moves in the New Zealand dollar.

 USD/CAD (U.S. dollar / Canadian dollar)

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada which is already the biggest exporter of oil to the US, will experience a boost to its economy when oil price continue to increase. Therefore, if oil rises the Canadian dollar is likely to follow. Over the past years , the correlation between the Canadian dollar and oil prices has been approximately 81%.

Trading Ideas

1) If you believe the price of oil will keep rising, it might be a good strategy to buy the Canadian dollar because it's 81% positive correlation to oil over the past years.

2) Since the USD/CAD pair tends to be highly correlated to oil, it might be a good idea to compare both Canadian dollar and oil charts in order to predict future moves.

The Aussie  extended gains against the US dollar for a third day on Wednesday, as investors continue to speculate that the US Federal Reserve (Fed) will continue to cut its monthly bond purchases further which will strengthen the greenback.
The currency pair climbed 0.37% to $0.8807 at the time of writing, after reaching $0.8825 earlier in the session. The Australian dollar touched 86.60 on Jan 24, the lowest since July 2010. Australia’s ten-year government bond yield added nine basis points to 4.12%, after dropping to a low 4.02%; the lowest since Oct 31.

Federal Reserve Meeting

Members of the Federal Open Market Committee (FOMC) are meeting up later today to continue the two-day policy meeting.
Market analysts are predicting members of the Federal Open Market Committee will continue to reduce its monthly bond purchases by $10 billion at every meeting to end the stimulus program by this year, despite the recent disappointing non-farm payrolls data for the previous month.
In the last fed-meeting, the central bank decided to reduce its monthly bond purchases by $10 billion to $75 billion a month. Minutes for the Federal Open Market Committee (FOMC) meeting will be released on Wednesday.

Australian Data

Reports released revealed the National Australia Bank Business Confidence Index stood at 6 in December, after the previous month’s reading was up from 5 to 6.
The same report revealed the Australian business conditions rose by seven points to 4; the highest since March 2011, from -3 recorded in November.
“Business conditions recorded a surprising jump to a more than a 2.5-year high in December – cementing the upward trend seen over recent months – supported by the low interest rate environment, higher asset prices and less elevated Australian dollar,” the NAB commented.

•  
• Revises lower their forecast for potential major projects pipeline in Australia
• 2014 to 2016 revised to A$280bn from A$312bn (prior estimate was in March 2013)
• Have upgraded their capital expenditure projection for projects either committed to or already under construction to from $160bn to $180bn (citing both cost increases and  changes in the timing of

ANZ says further:

• state governments are signalling their intention to increase infrastructure investment
• A number of large projects marked to proceed, which should be supportive of activity from 2015 onwards
• Also, forecast a sharp rise in resource exports, to contribute 1% to GDP growth annually in coming years

A strengthening U.S. dollar will damp demand for commodities this year, according to UBS AG.
The greenback, at a four-month high against 10 major peers, will strengthen further because of the Federal Reserve’s tapering of stimulus, the shale oil and gas “boom” and a growing trend for businesses to move back to the U.S., the bank said in a report dated yesterday. That will damage conditions in emerging markets and commodity demand, according to the bank.

“We believe we are about to see a cyclically and structurally stronger dollar,” Julien Garran, a London-based analyst at UBS, wrote in the report. “A strong dollar will prove to be a major problem for commodities and emerging markets in 2014.”

Investors dumped emerging markets and commodities at a record pace last year amid concerns slowing growth there will curb demand for raw materials and a stronger dollar will add to the headwinds. Investors withdrew a record $43.3 billion from commodities and $31.4 billion from emerging-markets bond funds, the most ever, according to researcher EPFR Global. Withdrawals from emerging markets equity funds were $27.6 billion.

“When the dollar trends higher, and capital flows out of emerging markets, commodity intensity in global GDP growth tends to fall by two-thirds,” Garran wrote. “Historically, trend global copper demand growth has fallen from 5 percent under emerging markets inflows to 1.6 percent under outflows.”
The Bloomberg Dollar Spot Index rose to a four-month high today and is 1.6 percent higher this year. The gauge’s 3.5 percent gain last year was the biggest since 2008. The Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials slid 2.2 percent last year, its first drop since 2008, and fell 2.2 percent so far this year.

By Maria Kolesnikova

LONDON, Jan 20 (Reuters) - The euro recovered slightly from a two-month low against the dollar on Monday, helped by higher short-term market interest rates, although speculation the European Central Bank may step in limited its gains.
After breaking through support at $1.3550 on Friday, the euro fell in Asian trading on Monday, touching its lowest since Nov. 25 at $1.35080. It later recovered some ground, and was 0.1 percent higher at $1.3550 early in London.

The single currency has weakened this month as year-end factors such as euro zone banks repatriating assets fade, with speculation the ECB will act to loosen liquidity meaning that even a rise in overnight borrowing rates has failed to lift it.
"We think that (the) key driver of the recent euro underperformance is growing market expectations of ECB action to address the tightening money market conditions," said Citi strategist Valentin Marinov.
Eonia, the euro zone overnight bank-to-bank lending rate, rose above 0.30 percent on Friday, more than the headline 0.25 percent rate that banks pay when they borrow at the ECB's still unrestricted lending operations.

After the central bank's January policy meeting, ECB President Mario Draghi said an "unwarranted" rise in the bank-to-bank lending rates that underpin euro zone borrowing costs would be one of the triggers for another rate cut or more drastic action.

One trader said the euro's rise may squeeze out some short-sellers but that the single currency could then head lower again, potentially entering a technical downtrend.
"The market has been focusing on broad dollar strength against everything except the euro ... The euro was playing catch-up," said Chris Turner, head of FX strategy at ING, referring to the euro's overnight weakness.
Turner said he expects the euro to fall to $1.33 this week and to $1.20 by the end of the year against a strengthening dollar as the Federal Reserve cuts back its huge bond-buying programme and as euro zone residents begin to invest abroad.

Investors were left looking for direction, with little economic data due out of Europe, other than German December producer prices that were slightly above forecast. U.S. markets are closed on Monday for Martin Luther King day.

The Australian dollar got some relief after China's annual economic growth in the final quarter of 2013 came in at 7.7 percent, down from 7.8 percent in the previous three months but slightly ahead of market expectations for growth of 7.6 percent.

"It's not a particularly good number but there wasn't any drop to levels below the 7.5 percent threshold," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation.
While the data might have spurred some short-covering in the Australian dollar, the impetus is unlikely to be strong enough to prompt traders to go long the currency, he added.

The Aussie edged up 0.1 percent on the day to $0.8790 after earlier falling to $0.8756, its lowest level in about 3 1/2 years, in the wake of weak jobs data last week.
Traders said the 87 U.S. cent area should provide good support, as it did in 2010, although a break could see it test $0.8600 in a hurry.

SYDNEY, Jan 20 (Reuters) - The U.S. dollar started Monday near a two-month high, having enjoyed a solid comeback last week after a string of mostly upbeat data convinced markets the Federal Reserve will continue its gradual withdrawal of stimulus.
The dollar index stood at 81.215, after rising 0.7 percent last week to as high as 81.295. Data on Friday showed U.S. industrial output rose at its fastest clip in 3-1/2 years in the fourth quarter, adding to other encouraging reports such as retail sales.

Richmond Fed President Jeffrey Lacker on Friday said signs of an improving labour market justified further reductions in the Fed's monthly bond purchases.

The euro traded at $1.3530, not far from a two-month trough of $1.3517 plumbed on Friday. Against the yen, both the dollar and the common currency were a touch softer at 104.27 and 141.06 respectively.
Traders expect little market action in the lead up to a batch of Chinese data due around 0200 GMT, while overall volume could be dampened by a holiday in the United States.

China will release industrial output, retail sales and fourth-quarter gross domestic product (GDP).
Analysts at Barclays Capital see a further moderation in China's industrial production growth and GDP as elevated interest rates across the money, bond and credit markets could lead to higher funding costs and weigh on economic growth.

"Investors in resource risk currencies such as the AUD, BRL and ZAR will be watching the news out of China very closely, as it will set the tone not just for now but for the rest of the trading year," said Evan Lucas, strategist at IG in Melbourne.

"The market is looking to poke holes in anything that shows signs of sustainability from China."
The Aussie, already hit by weak jobs data at home last week, looked vulnerable at $0.8771 within a hair's breadth of a 3-1/2 year trough of $0.8764 plumbed Friday.

Traders said the 87 U.S. cent area should provide good support, like it did back in 2010, although a break could see it test $0.8600 in a hurry.

In contrast, sterling held onto most of Friday's gains after British retailers reported their fastest sales growth in more than nine years.

The pound traded at $1.6411, having risen more than 0.4 percent to a high of $1.6459. Early this year, it hit a three-year high of $1.6605.