Dollar Mildly Higher as Risk Appetite Recedes, Busy Economic Calendar ahead

Dollar strengthens mildly today as risk appetite recedes with broad based weakness in Asian equities. Comments from Dallas Fed Fisher cooled speculation of further easing from Fed. Fisher is optimistic that US is "poised for growth" going into 2012 and the direction is "positive". He sees recession risks as "negligible" and he's neither worried about immediate inflation. He expects GDP to have solid growth of 2.5-3.0% in Q4. And thus, he is "not anticipating greater accommodation. This was in sharp contrast to Bernanke's earlier comments that the pace of recovery will be "frustratingly slow"

In Europe, the resolution to Greece and Italy political turmoil provided brief help to the Euro only. Markets focus is turning to Spain, which spread with German bund jumped to euro era record of 4.30% yesterday. 10 year Spain yield broke 6.0% for the first time since August. Much focus will now be on the EUR 7.5b bond auction later this week on Thursday. In Greece, new prime minister Papademos pledged to implement decisions from the October EU submit to secure the EUR 8b tranche of bailout fund before the government runs out of money in December. Italy new prime minister designate Monti will meet with the biggest two parties today to discuss the "sacrifices" needed to restore market confidence.

RBA minutes showed that while policy makers saw the case for "modest" easing earlier this month, the first cut since April 2009, the overall debate was pretty balanced. Some policy makers also saw the case to keep rates unchanged to await the effects of higher commodity prices and resource investment boom. It's believed that the bank is in no urgency to cut rates again in December. Economists are expecting that the "neutral level" for RBA rates at 4-4.5% and some expect another 25bps cut in Q1.

PBoC of China auctioned USD 8.2b of one year bills today, the biggest sale since May. Yield was at 3.4875% comparing to last week's 3.5733%. The sales suggests that China is starting to allow market pricing to fall, which suggests that it's closer to easing ahead. There were speculation that China would start easing soon after Premier Wen noted the need for policy adjustment last month. meanwhile, inflation data, which is trending down, is giving China some leeway to ease. At this point, there is no expectation for the rate cut this year yet and the best China could do this year is lower the reserve requirement ratio. But that's far from being certain.

The economic calendar is rather busy today. Eurozone GDP will be a main focus, and markets will have particular interest in GDP growth in individual countries in Q3. In addition, German ZEW economic sentiments will also be released. From UK, CPI data is expected to show mild moderation in October. From US, PPI, retail sales and empire state manufacturing index will be watched.