v USD mixed in holiday-thin markets; ISM manufacturing beats expectations at +54.8, up from 53.4 in March;
v EUR has come under pressure as regional debt fears again weigh on investor sentiment;
v AUD is sharply lower after the RBA cut rates by a larger than expected 0.5%.
The USD is mixed this morning, gaining against many of its higher-yielding and European counterparts, while falling against the other North American currencies. The move comes after US data registered better than expected with ISM manufacturing rising to 54.8 from 53.4 in the previous reading despite recent weak regional reports. The better-than-expected reading marks the fastest pace of expansion seen in the US manufacturing sector in more than ten months, suggesting that it remains an engine for US economic growth. Strong emerging market and Asian demand has been robust enough to largely offset the sharp decline in European demand for US-made goods. While the data is supportive of the US economy as a whole, it has also spurred some investors to pare their bets that the Fed will enact another round of monetary easing in the coming months. As such, the dollar index is up nearly 0.5% this morning.
The EUR dropped sharply after approaching the top of its recent ranges overnight as investors focus on the surprising US ISM report. With European markets closed for May Day, the common currency remains vulnerable to further weakening, albeit within its recent ranges. The common currency also remains under pressure as investors focus on the Eurozone's mounting woes with the ECB citing a marked deterioration in financial integration in the euro area in a report released late last week. It went on to state that during 2011, the intensification of the sovereign-bond crisis strongly affected the euro-area financial system and that the positive effects of the Bank's LTRO programs are wearing off. With Spanish and Italian bond yields again on the rise and both economies contracting, the common currency will likely struggle to post sustainable gains in the near term.
The GBP is mixed this morning, gaining against the EUR while falling against the USD after a report showed that British manufacturing slowed by more than forecast. UK PMI manufacturing fell to 50.5, short of the 51.5 that was expected, and down from the downwardly revised 51.9 reading last month. This has contributed to some profit taking this morning after the GBP rose to as high as 1.63 against the dollar yesterday, close to its average exchange rate over the past 20 years. However, with the UK economy still largely reliant on Eurozone demand, the GBP's recent gains appear to be unsustainable.
The JPY continued to perform well overnight until the encouraging US ISM report sent stocks and commodities higher. With Japan also closed for holiday today, investors have taken the boost in positive sentiment as reason to sell the yen and take advantage of its recent appreciation. Nevertheless, the yen remains towards the top of its recent ranges with further gains to be expected in the near term.
The Commodity Currencies are mixed this morning with the CAD and MXN both rising while the NZD and AUD are sharply lower. Raw goods are mixed with oil rising to $106/bbl and copper gaining to $384/lb while gold fell to $1663/oz. The CAD is stronger on the rising price of oil, Canada's main export, and after the encouraging ISM data out of the US, Canada's main trading partner. Similarly, the MXN gained to a three-week best against the USD this morning, breaking back below the key 13.00 level, supported by the US data and after the Mexican Finance Ministry announced that the economy grew at a faster pace than expected. On the other hand, the AUD is sharply lower this morning after the RBA unexpectedly cut interest rates by 0.5% to 3.75%. While Aussie yields remain the highest amongst the G10 nations, most investors had been expecting a smaller 0.25% cut in the benchmark rate. However, in light of recent remarks from Australian policymakers that the persistently high AUD has weakened Australia's terms of trade, the relatively large cut in interest rates should not come as too much of a surprise. Further supporting the Bank's decision, was data released today showing that Australian home prices fell and a gauge of manufacturing fell to a seven-month low.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.