• Main theme driving the FX market: Positive U.S. corporate earnings news helped to overshadow dreary testimony on the U.S. economy by Fed chair Bernanke. As a result, most risky assets rose this week. The Australian dollar, a currency with the highest yield among developed nations, hit a 2-1/2-month high against the greenback as improved market sentiment spurred risk sentiment.

• Australian Dollar: As the week rolled out the Aussie went from strength to strength ending the week at 2 ˝ month highs against the Greenback with similar advances against other safer haven currencies. Renewed investor confidence in Equity markets and further expectations of the RBA to hike interest rates in the coming months has assisted the Aussie bid.  

• U.S. dollar: The dollar turned in an uneven week, losing ground on weak data like a home builder survey that tumbled to a 15-month low in July. The buck hit a 10-week low against the euro and neared a seven-month low against the yen. However, the buck stabilized around the middle of the week after a downbeat assessment of the recovery by the Fed chief triggered a flight to safety.

• Euro: Mostly positive euro zone data contrasted poor indicators out of the U.S., a key factor behind the single currency’s surge early in the week to a 10-week high against the greenback. However, the euro handed back some of its gains as many investors remained sceptical about Europe’s banking sector despite news that only 7 of the 91 banks tested under stressful conditions came up short.

• Japanese yen: The yen kept towards the stronger end of its recent ranges, putting it close to the 7-month peak it hit last week against the buck. The yen benefited from concerns about the strength of the U.S. recovery. Investors also seem to be testing the resolve of Japanese officials who largely prefer a weaker currency to help boost exports.

• Australia: A relatively heavy week for the Australian economy data wise one week out from RBA’s decision day will be headlined by CPI figures on Wednesday. The Aussie will still stay receptive to equity markets globally and feed from positive figures in the States and Europe.

• United States: The first of three looks at U.S. growth during the second quarter will headline a raft of indicators this week. Investors will also study reports on the housing market, consumer confidence and a Midwest manufacturing survey. Poor results may pressure the dollar by adding to evidence of a moderating pace of U.S. recovery.

• Euro-zone: Investors will parse employment reports from Germany as well as the broader euro zone to gauge how the 16-nation economy is holding up amid the sovereign debt crisis that continues to grip several of the smaller economies in the bloc like Greece, Portugal and Spain. Market watchers will also pore over data on euro zone economic sentiment and German consumer price inflation.

• Britain: With little U.K. economic data to consider this week, sterling currency watchers should turn to equity and commodity market movements for their cue. A report on British consumer credit for June is due out Thursday.

• Japan: Japanese indicators on retail sales and the nation’s unemployment rate will take centre stage on the data calendar. As a defensive, safe-haven currency, the yen would tend to benefit if investor confidence retreats which would temper risk sentiment.