THE US dollar consolidated the previous week's gains by firming to 1.686 deutschemarks and 108.4 yen. For the dollar to extend its current rally it needs confirmation that the United States economy is strengthening. Investors hope the preliminary third quarter US employment data will provide evidence of increasing business activity. The dollar should benefit from speculation over the unemployment figures, with a test of resistance at 1.70 deutschemarks likely. Influential economist Fred Bergsten said currency policy was to stabilise the dollar between 100 and 110 yen and that intervention was needed about 110. The dollar weakened after his statement but rebounded as participants believed his views were similar to those espoused by the Clinton administration. We believe that the dollar should continue to appreciate against the yen as Japan's gloomy economic conditions will undermine the Japanese unit. The Canadian dollar slipped back to 1.32 to the US dollar following the Liberal Party's landslide election victory. Investor concerns over possible modifications in economic policy due to the change in government dampened sentiment towards the Canadian unit. On a positive note, the Canadian Bond Rating Service reaffirmed its current rating of Canadian Government debt, which will help to underwrite the currency. If Canadian dollar support holds at 1.324 to the US dollar, then a move back to 1.31 is likely. James Mitchell is an economist at BNP International Financial Services (HK).