The major currencies whipsawed around in the Tuesday session with the euro recovering sharply against the dollar off its 4-year lows at 1.2113 to settle just below the 1.23-mark by afternoon trading. Initially weighing on the single currency overnight was a report from the ECB, which revealed expectations for Eurozone banks to be hit with another 195 billion euros in writeoffs by the end of 2011 - due to public finances. Also prompting heightened risk-aversion in the global financial markets was a softer than forecast reading in manufacturing data from China - sparking fears of a slowdown in the economy.

The Bank of Canada, as expected, lifted its benchmark-lending rate by 25-basis points to 0.5%. The initial reaction in the currency market was for a dip lower in the Canadian dollar, losing over 50-pips versus the greenback as the accompanying statement offered few signals on timing and scope of future policy moves. The BoC expressed caution over developments in the Eurozone but said, thus far, the spillover into Canada has been limited to a modest fall in commodity prices and some tightening of financial conditions. Lastly, the Bank stated given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

The Australian dollar recovered from its earlier sell-off, edging back above the 0.83-level to hover near 0.8380. Dragging the Aussie lower was the monetary policy announcement overnight from the RBA. Markets were expecting the RBA to leave interest rates unchanged for the month and resume it's tightening cycle at the subsequent meeting. While the Reserve Bank of Australia left interest rates unchanged at 4.5%, the accompanying statement suggested it is likely to pause again at its next meeting. The RBA stated that current policy was appropriate in the near-term, suggesting that further rate hikes may be delayed further amid worries over global growth.

Economic data from the US today saw the May manufacturing ISM, which increased by more than forecasts to 59.7 and April construction spending, up by 2.7%. The calendar for Wednesday will see the May Challenger job cuts and pending home sales. The key highlight for the week will be Friday's non-farm payrolls figure. Consensus estimates are pointing toward a blockbuster jobs number, expected to add 508k jobs to the economy - its fastest pace since 1997.