• U.S. jobs report key to dollar positioning
• Canadian trade deficit jumps in April
• RBA stays put on rates but notes Aussie still high
USD – The US Dollar rebounded from one-month lows against a basket of currencies after suffering a sharp setback the previous day. Disappointing data curbed speculation the Federal Reserve would scale back its stimulus anytime soon. Also assisting the greenback’s rebound was a rally in equities worldwide signaling sustained investor appetite for risk and demand for U.S. assets. The widening of the U.S. trade deficit in April to $40.3 billion from a more than three year low reflected a rebound in imports of consumer goods and business equipment that eases concern about the degree of slowing in economic growth.
EUR – The euro was lower against the US dollar, off its peak reached on Monday, its highest level since May 9. Euro zone producer prices fell further in April, marking the biggest month-on-month decrease in nearly four years and keeping alive chances of more interest rate cuts by the European Central Bank. The week’s big euro focus will be the ECB’s monthly meeting on Thursday at which officials are mostly seen holding interest rates steady. A post-meeting press conference by ECB president Mario Draghi would come under close scrutiny for clues on the prospects of a rate cut. The PMI data will help to support the view that the speed of the downturn has stabilized in the euro one. The outlier is likely to remain Germany where attention will be on whether there are positive surprises from the recent flash PMI releases for May. Better data is likely to further dent expectations for firm ECB action at their meeting on Thursday.
GBP – Sterling fell against the US, taking a breather from its biggest one day rise in six weeks against the dollar a day earlier, with traders waiting for more evidence of a durable UK recovery to make large bets in favor of it. Britain's construction sector returned to growth in May and came just a day after better-than-expected manufacturing sector activity. The key services sector purchasing managers' index on Wednesday is likely to hold the key to whether the pound can hold its ground near a three-week high against the dollar struck on Monday. The Bank of England's Monetary Policy Committee also starts its two-day meeting on Wednesday. It is widely expected to hold rates at record lows and keep its asset purchase program unchanged. The meeting will be Governor Mervyn King's last.
JPY –The Japanese yen lost ground against the US dollar and weakened against the majority of its most-traded peers, as investors capitalized on the previous day's sell-off to buy back the greenback at lower levels. A rally in Japanese stocks spurred risk appetite and curbed the need to hold yen for safety. The yen was also under pressure after sources told Reuters that Japan's government will urge public pension funds - a pool of more than $2 trillion - to increase their investment in equities and overseas assets.
Commodity Currencies – The Canadian dollar extended losses against the US dollar, weakening 0.3 percent after the release of trade data showed a deficit in Canada in April. The April deficit hit $567-million, slightly more than the $550-million shortfall analysts had expected. March figures were also revised from an initial $24-million surplus to a deficit of $3-million. Analysts will turn their attention to the Bank of Canada (BOC) Governor, Stephen Poloz who will testify before the House of Commons on his views about financial stability and the world economy. In particular the market will be looking for any clues that will indicate that Poloz favors a weaker loonie. The Australian dollar managed to trim its losses by 0.4 percent after the Reserve Bank of Australia (RBA) kept its cash rate steady at a record low of 2.75 percent; however, Governor Glenn Stevens said easing was still a possibility if the inflation outlook did not improve. The downward pressure on the dollar assisted in the Aussie’s recovery yesterday moving the currency off of a 19-month low and also assisted the New Zealand dollar to recover from an eight month low.
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