Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

•             EUR lower on weak CPI data

•             Commodity Currencies mixed despite stronger data out of Canada

USD – The dollar pared gains against the euro and yen after the release of lackluster growth figures, but stronger labor data.  The economy in the U.S. managed to expand in the fourth quarter, as the smallest trade deficit in almost three years helped overcome the plunge in defense spending.  Gross domestic product grew at a 0.1 percent annual rate, up from a previously estimated 0.1 percent drop, revised figures from the Commerce Department showed today in Washington.  Also assisting the dollar was a drop in unemployment benefit figures.  The number of Americans seeking unemployment aid fell 22,000 last week to a seasonally adjusted 344,000, evidence that the job market may be picking up.  Look for the markets to turn their attention to the sequester as the start of the all-important US budget cuts gets underway tomorrow.  Look for the dollar to remain well supported with the markets having already priced in the budget cuts and with dovish comments from Fed Chair Ben Bernanke coupled with encouraging data out of the U.S.

EUR – The euro weakened after the release of euro zone data and as the market continues to digest the mixed results and the future of the Italian government.  Eurozone CPI came in as expected down ‐1.0 percent m/m and up 2.0 percent y/y with a softer than expected print of 1.3 percent y/y.  German unemployment was mixed, with job gains of 3k, but an increase in the unemployment rate to 6.9 percent.  France released weak consumer spending, falling ‐0.8 percent m/m and -0.2 percent y/y, while Spain released a disappointing final Q4 GDP, down ‐0.8 percent q/q and ‐1.9 percent y/y.  Analysts will look towards the EU’s March 7th meeting to see if the euro zone will maintain its dovish tone.  With the BOJ, BOE and the Fed all focused on large QE programs, the euro may become more attractive from an ECB balance sheet perspective.  However, until the stalemate over the Italian election results are finalized and the direction of the Italian government is cemented, look for the euro to remain under pressure.

GBP – Sterling rose on technical moves as traders booked profits and cut recent bets against the currency on month end flows.  The pound could continue to see short term benefits with some analysts feeling that the currency may have been oversold.   Look for any bounce, however, to be short lived as the BOE has signaled it will tolerate higher inflation to support growth, as well as, continue bond purchases which will ultimately weigh on the currency.

JPY – The yen held close to yesterday’s level after the BOJ announcement of the BOJ governor and deputy governor positions.  Prime Minister Abe announced that he will put Haruhiko Kuroda before both Houses as the nominee for BOJ Governor, with Kikuo Iwata and Hiroshi Nakaso as nominees for Deputy Governors.  If approved by both Houses, they will enter their new roles on March 20th, with their first official meeting on April 3rd and 4th.  In other news, manufacturing PMI climbed to 48.5.  Look for the yen, however, to weaken further as more monetary easing is expected from the BOJ, especially once the BOJ nominees are officially announced.  

Commodity Currencies – The Australian dollar traded within ranges today but still hovering near 4-month lows after Capex data reported lower than expected.  Private capital expenditure unexpectedly slid by 1.2 percent over the fourth quarter, disappointing economist forecasts of a 1.0 percent gain after a third quarter rise of a 1.1 percent.  The contraction in Capex suggests the resource boom has already occurred whilst the rest of the economy still lags behind.  As a result, the data has heightened the expectations of an RBA cut next week.  Expect the AUD to remain in lower ranges as the week wraps up pertinent headline releases.  The Canadian dollar is broadly underperforming against the USD and a basket of major currencies. The CAD weakened after data showed the U.S. economy, the largest destination for Canadian exports, barely grew during the fourth quarter. The U.S. data overshadowed news that Canada's current account deficit narrowed in the fourth quarter of 2012 on stronger exports of energy and food products.  The deficit on trade in goods narrowed to C$2.8 billion from C$5.1 billion in the third quarter. Despite the healthier domestic trade balance, the CAD remains under pressure, in mercy of US growth horizon.