Further Slowing In China Activity A Risk For 2013 - Stretch

CIBC HEAD OF FX STRATEGY, JEREMY STRETCH: "Well I think it's absolutely right that the data is consistent with the rotation in Chinese activity away from the low-cost manufacturing exports to greater domestic consumption. But I think it's very much the case that the numbers, as you say, are not too hot, not too cold. But I think the risk is that we do see a further deceleration in activity as we go through this year. The fact that we didn't see the worst case scenario emanating as far as Q2 is concerned has obviously provided the Aussie with a little bit of a relief rally. But I think it is nothing more than that. I think the Australian story is still obviously close to the leverage with China. That deceleration, partly of the rotation in growth but the deceleration nonetheless I think will continue to influence the Australian Dollar. I think that will continue to fall and I think we see the RBA minutes overnight tonight also discussing the ongoing debate within the RBA about the need and requirement for a weaker Aussie to perhaps mitigate some of the more aggressive expectations in terms of lower rates, then I think that that relief rally is, as I say, will be an opportunity to sell the Aussie at slightly higher levels."JOURNALIST: "Now speaking of minutes, we've also got the Bank of Englandminutes this week, a first for Carney. We've got other data points too, the ZEW, we've got G20 on Friday. What is the biggest risk event for currency markets this week?"

STRETCH: "Well you're absolutely right, it is another big data week and I think it is going to be an interesting week because of course, we get more understanding of how central banks are looking at financial markets and I think that will be particularly interesting. So as you say, we have the first minutes from the Bank of England under the Carney tenure. I think there will be a potential risk factor that we don't get three votes for QE that we've seen subsequently. So those that are just been assuming that Mr. Carney will come in with a dovish bias and maintain the vote for QE that Mr. King have been pursuing, I think could be a little disappointed. That might cause a little bit of frisson of excitement on the release of the minutes because I think Mr. Carney will be much more favorable towards the forward guidance. I think the statement that came along with that rate decision is consistent with that. But I think that's going to be one risk factor which could see a little bit of uncertainty. We've also got the first Bank of Canada meeting with also the new governor this week. That will be another risk factor which I think people will consider where the MPR to come beyond that will lower the growth forecast, so I think that might provide some opportunity to buy the Canadian Dollar and any dips. But I think ultimately, it is still going to be the case that Mr. Bernanke will be the first amongst equals, amongst the central bankers and so clearly, the Bernanke testimony on Capitol Hill would be most important. And I think particularly with reference to the fact that markets I think still want to buy Dollars on dips so I think we'll be looking for any - markets will be hoping to cling on to any optimistic comments that he will make particularly in the Q&A as an opportunity to buy Dollars."

JOURNALIST: "And just very quickly, your target for the Dollar Index off the Bernanke latest comments."

STRETCH: "Well I think the Dollar Index, after the pullback that we saw last week, does provide some opportunities to buy into. I think clearly, Bernanke helped to arrest the interest rate strip last week but I think there is still some opportunity to buy the dip here. So I think we will see a stronger Dollar Index. I think we will see that continuing through the second half of this year and I think we will find that the Dollar Index will be something like 3% to 5% higher by the end of this year. But I think there's probably an opportunity for a one-to-two, two big figure topside rally as far as this week is concerned, if as I say, the markets cling on to any positive comments that Mr. Bernanke makes in the Q&A."