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

EUR – The EUR is back towards the top of its recent ranges this morning, but is off its highs after breaking above the 1.30 handle against the USD overnight.  With no new major developments in the Eurozone debt saga, the common currency has regained a bit of its appeal with sovereign debt yields throughout the region narrowing.  Italian yields have fallen to their lowest levels in more than six months, and the gap between periphery and benchmark German debt has narrowed significantly in the past week.  Meanwhile, investors have been encouraged by signs that regional policymakers are taking steps to further integrate the currency bloc.  EC President Barroso is promoting a plan to establish a full-scale Eurozone treasury over the next several years, which would gradually gain control of regional budgets while also raising money of its own through either taxes or debt issuance.  Nevertheless, the continued underperformance of the region’s periphery economies will likely limit any upside potential for the EUR in both the near and longer term.

GBP – The pound is mixed this morning, gaining against the dollar, but falling versus the euro. The drop against its mainland European counterpart comes after a report showed UK house prices fell by more than expected, contracting 1.2% in October after a 0.9% decline in the previous reading.  However, losses have been limited after current BoE Governor King assured investors that the Bank’s other policymakers “can stay for as long as they like,” unlike King whose successor was named earlier this week.  Continuity is supportive for the pound as British policymakers have grown increasingly hawkish in 2012.  With current BoC Governor Mark Carney, a conservative himself, set to take King’s seat, investors are discounting the extent of further BoE stimulus.

JPY – The yen is relatively flat this morning as rising stocks and commodities curb some of its “safe-haven” appeal.  Meanwhile, data released last night showing that the amount of foreign bonds bought by Japanese investors fell to ¥115B from ¥401B in the previous reading, suggests investors are tempering their expectations for further BoJ easing.  This evening, investors will take note of Japanese CPI, industrial production, and claimant count.

Commodity Currencies – The commodity linked currencies are surprisingly mixed this morning with the ZAR, CAD, and MXN gaining while the AUD and NZD are both lower.  The CAD pared early gains, but remains slightly higher, after the government reported the second largest current account deficit on record as demand for Canadian exports fell in the third quarter.  The gap widened to -$18.9B from -$18.4B in the last reading.  The MXN is also higher this morning as persistently high Mexican inflation is prompting investors to expect higher interest rates from the Mexican central bank in the coming months.  The AUD is off its recent highs, but remains at the top of its ranges, after a report showed that Australian business investment slowed by less than expected.

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