Australian Dollar: RBA Carries Top Event Risk of Central Bank MeetsDespite the Australian dollar’s penchant for leveraging risk trends into volatility, AUDUSD proved to be one of the more reserved pairings this past week. In fact, its activity level (10-day ATR) was the lowest we have seen since 2007 – yet, not that unusual given the general state of volatility measures across the market. That quiet will be difficult to sustain, however, heading into next week as the market is already pricing in fireworks from the RBA. Though we haven’t seen much change in central bank rhetoric or data recently, overnight swaps are pricing in a clear bias for an RBA rate cut come Tuesday. With an 83 percent probability of a 25bp cut, a move can get the Aussie moving…and so could a hold.

Japanese Yen: Policy Officials Pass Currency Responsibility Back to Risk

It has become something of a running joke that Japanese policy officials couldn’t influence their currency even if they acted upon the market with heavy rounds of stimulus or direct FX intervention. Yet, over the past three weeks, market participants have started to show a little more respect for their commitment to devalue the local currency and help support growth. LDP Opposition Lead Abe has been integral to the effort by voicing a commitment to escalate the issue to the point that policy effort could offset risk flows, repatriation and other currents of capital flow – that he could potentially rescind the BoJ’s independence and embark on unlimited stimulus. That threat was worth hundreds of pips on yen crosses, but the drive may be over. This past week Abe recanted his BoJ override. So, unless risk appetite drives the yen down, it may be oversold…

British Pound Little Moved on the Week, Can the BoE Shake Things Up?

While the broader FX markets were little moved, the sterling stood out for its lack of influence. The currency has struggled to rouse its own volatility – much less trend – and there are few things that can unseat that complacency. One of the few events that carry the necessary influence is the Bank of England monetary policy meetings. The central bank has fallen far behind the pack in terms of stimulus, which is unusual given Governor King’s vocal concerns and the government’s dedication to austerity. Market’s are expecting no change to the asset purchase program, but the discuss of different programs may start to pop up. If they do, expect the sterling to tumble.

Canadian Dollar: USDCAD Implied Volatility Slowly Picks Up from Record Low

We already know USDCAD to be one of the most resistant to trend amongst the non-managed and highly liquid pairings. However, in these generally mute market conditions, it seems even this quiet pair is managing incredible extremes. This past week, the one-week implied volatility (expectations for market movement) for USDCAD slowly advanced from its lowest level on records going back nearly 13 years. That passive view was deserved given the top concern facing the global markets (Fiscal Cliff) would impact both the US and Canadian currency to similar magnitudes. Yet, extremes do not last; and the Canadian dollar will have a chance to stir volatility in the immediate future. The first nudge higher came this past week with 3Q trade and GDP figures. Coming up we have the BoC and Canadian employment data. It is worth mentioning that we haven’t seen a weekly move over 200 pips from this pair in nearly a year. Is it overdue?

Gold’s Chances to Overtake 1800 in 2012 May be Over

Through the past week, gold was the stand out amongst the various ‘high profile’ assets. While US equities extended their slow climb, the euro suffered some volatility following the Troika’s approval of Greek aid distribution and the dollar retrenched into congestion despite the ticking countdown to the Fiscal Cliff; gold had clearly topped the market for activity. Futures volume through the past week and month were the highest seen since the period through June 1. Further, the pickup in trading and a unique consistency of trend led the metal to the biggest weekly drop since June 22. For all intents and purposes, an active market. However, when we look at the CBOE’s gold volatility index, we find expected volatility levels at series lows. Through all the activity, gold has held back from developing a meaningful trend (bullish or bearish). We have to consider the metal slid despite a stalled dollar and escalation of US fiscal fears. At this pace, little could drive us back to 1800 before year end.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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