• USD is broadly stronger ahead of this Friday’s jobs report

  • EUR is relatively flat against dollar ahead of Thursday’s ECB meeting

  • Commodity currencies are weaker as the BoC and RBA seem unlikely to tighten economic policy


USD – The dollar pushed higher against the yen and hovered close to recent ranges against the euro in thin trading ahead of the July 4th holiday. The move came after the release of manufacturing activity cited an expansion last month, rebounding from the previous month’s contraction. The ISM report said national factory activity rose to 50.9 from 49. In addition, Factory Orders month over month rose 2.1% in May, beating expectations of plus 2.0%. A separate report on Monday showed construction spending reached a four-year high last month. The market will turn its attention to Non-Farm Payrolls due out on Friday, where some analysts expect the economy added 165,000 jobs in June. If the jobs number beats analysts’ expectations, look for the dollar to rally along with market expectations that the Fed will start scaling back stimulus.

EUR – The euro held close to recent ranges against the dollar and pushed to a three week high against the yen after yesterday’s release of Eurozone manufacturing data. Manufacturing output in the Eurozone improved in June to a 16-month high. The June PMI rose to 48.8, up from the flash estimate of 48.7 and May's reading of 48.3. In other news, IMF data said the euro’s share of global central bank foreign exchange reserves declined by 1.2%, to 23.9%, primarily due to tensions about the stability of Eurozone sovereign debt. Analysts will look towards Thursday’s ECB meeting for further clues about the EU economy where ECB head Mario Draghi, may stress the need for additional stimulus. Look for growing concern about the Eurozone's faltering economy to continue to pressure the single currency.

GBP – Sterling fell to a one-month low against the dollar as the market pushed aside positive data out of the UK and focused on uncertainty around monetary policy with the new BoE Governor Mark Carney. Recent economic data showed that Britain's construction sector PMI for June was in line with expectations, while business confidence rose to its highest level since 2007. The PMI reading for June came in at 50.8, above the 50-point level, which indicates expansion. Despite the positive data, investors focused on expectations of aggressive monetary easing under a new central banking chief. Look for sterling to remain under pressure as Carney chairs his first Monetary Policy Committee this week, where the committee is widely expected not to change interest rates or its quantitative easing policy.

JPY – The yen weakened pushing above the key technical level of 100 on the interbank market on broad dollar strength. The move came despite yesterday’s release of the Tankan survey highlighting positive corporate sentiment. The Tankan survey revealed that the mood among businesses improved sharply after the central bank introduced an aggressive easing policy in April. The headline figure came in plus 4, up from minus 8 in the March survey, the highest reading since a plus 6 release in March of 2011. Look for USD/JPY to hold above 100 yen ahead of the BOJ’s next monetary policy meeting on July 11th.

Commodity Currencies – Commodity currencies are broadly lower against a firmer US dollar as both the BoC and the RBA seem unlikely to tighten economic policy anytime soon. USD/CAD reached its weakest point in 21 months on expectations that the Fed will scale back monetary easing. Domestically, the BoC forecasted Canada’s 2nd qtr. growth on an annualized basis will be 1.8%, down from the 2.5% in the 1st qtr. In addition, a report showed durable goods output were up by 0.5% while non-durable goods production dropped by 0.3% on declines in petroleum and coal products. The AUD/USD fell 0.6% to 0.9182 on the heels of dovish comments from the RBA that left open the possibility of rate cuts. Meanwhile, exports of iron ore, the country's single biggest export earner, slipped about 2% in June from May but were up 43% from a year ago. The resilient shipments of the mineral to China will support Australia's trade balance moving forward.