The US dollar weakened across the board as stocks rallied and an increase for risk appetite continued. Yesterday the S&P 500 stock index rose above 900 for the first time since January, with European stocks continuing that momentum. Investors, however await this week's announcement of the all important results of the stress tests of 19 U.S. banks due out on Thursday where analysts anticipate that close to 10 banks are under-capitalized.
Later today investors will look towards the release of U.S. service sector activity and Fed Chairman Ben Bernanke testimony before Congress on the U.S. economy. Look for the dollar to remain under pressure ahead of the stress test announcement later this week and on the heels of the European Central Bank (ECB) and Bank of England (BOE) policy meetings on Thursday.
The euro reached a one-month high in early trading this morning, but quickly pulled back ahead of Thursday's ECB meeting. The ECB is expected to cut its main interest rate by 25 basis points to a record low of 1 percent. Analysts, however, will focus on any accompanying statement that will indicate it will keep cutting rates or adopt a different approach like buying securities to stimulate growth. If the ECB indicates they will keep to a much more traditional policy then look for the euro to push as high as the $1.35-$1.36 range.
Sterling reached a four-month high breaking the key psychological level of $1.50 as the UK stock market surged and renewed investor risk appetite dominated the market. Investors however will continue to wait for Thursday's BOE policy statement where interest rates will most likely remain on hold at 0.5 percent. The market will look to any move by the BOE to extend its campaign of quantitative easing beyond the current 75 billion pounds. Look for the pound to continue to hold on to its gains ahead of Thursday's policy meeting.
The Japanese yen continued this morning's trend rising 0.1 percent against its US counterpart. In the short term, look for the currency pair to continue to hold close to its 200-day moving average of 98.31 with light trading due to closed Japanese markets for the Golden Week holiday.
The Canadian dollar rose to its highest level in six months as demand for riskier currencies took focus. Assisting the loonie was crude's rise to $55 a barrel its highest level since last November. With no major Canadian economic data due out today, analysts will look towards employment data, the Ivey Purchasing Managers' Index and housing reports later this week. Look for USD/CAD to continue to trade in tandem with commodity prices.
The Australian dollar reached a seven-month high as renewed optimism that the global recession is waning took focus. As expected the Reserve Bank of Australia (RBA) today kept rates unchanged at 3 percent noting positive signs of stabilization in China . Analysts were, however, looking for a statement from the RBA which would follow the Reserve Bank of New Zealand 's call for low rates until late 2010. Look for high commodity prices and renewed risk to continue to support the Aussie.
The New Zealand dollar rose to a three-week high against its US counterpart as stronger equity markets boosted risk appetite and demand for the currency. Also supporting the kiwi was the release of data today showing New Zealand 's main commodity exports posted their strongest monthly rise in two years. Look for the kiwi to be primarily driven by equity markets on the back of New Zealand 's central bank reiterating that it would keep rates low until 2010.
The Mexican peso gained ground as renewed risk entered the market and after Mexico introduced a temporary reduction in taxes for cruise lines to assist Mexico 's tourism industry. Look for the peso to remain supported as new expectations rise that the swine flu epidemic will not have as big of an economic impact as originally feared.
10-Year Treasury Note Yield : 3.150%
Dow Jones Industrial Average : 8,389.31 – 36.96