Ø Euro higher, as rumors of Greece seeking to modify its austerity program following the June 17 election in a bit to remain in the Eurozone;
Ø US PPI drops in May as energy costs drops; US retail sales fall for second straight month;
Ø AUD tests parity after talk of a potential banking union in Europe
The USD is weaker against a basket of currencies as mild risk appetite returned to the market after rumors surfaced that there may be a renegotiation of Greece's bailout. However, any gains were capped as investors remain cautious before the Greek election this week. The Labor Department reported a drop in PPI to 0.7 in May, the largest drop in over three years as energy costs dropped. The drop in PPI is a sign of easing inflationary pressures which could give the Federal Reserve more room to help the economy should growth weaken. Data for retail sales fell for the second straight month in May to -0.2% as was expected by many analysts, as demand for building materials tumbled and gasoline prices declined.
The euro remains closer to the overnight highs after rumors surfaced that Greece's bailout terms may be renegotiated. Financial Times reported that the Greek government will seek amendments to the terms of the bailout, in an attempt to remain in the monetary bloc. Adding support to the euro was mildly better than expected industrial production data. Though the industrial production remains on a contractionary path, the decline in April was -0.8%, better than the -1.0% forecasted by analysts. Watch the euro to remain under pressure ahead of the Greek election this Sunday and growing concerns of Spain's debt turmoil may ensnare Italy whose borrowing costs are also at high levels.
GBP remains within a tight range with no economic data due today, leaving the currency to trade on headline risk. Markets will likely react with BoE Governor King's annual Mansion House speech tomorrow and trade figures due on Friday.
JPY is slightly weaker, down against the USD as a result of risk appetite. Overnight data suggest strength for Japan's manufacturers, given that machine orders rose 6.6% y/y, beating expectations of a rise of 4.9% y/y. Movement in JPY has remained limited over the past few sessions, trading well within a range bound by 79.00 and 80.00. Such movement is suggestive of the market's tentative nature ahead of the Greek elections.
Commodity Currencies is mixed as CAD held flat and AUD gained testing parity with renewed risk-on sentiment on talks of a potential banking union in Europe. With no data out of Canada, analysts are focusing on the broader risk on market sentiment. Saudi Arabia's Oil Minister stated that there is loose supply-demand in the crude market, indicating that oil prices will remain pressured due to diminished demand, which could hurt USD/CAD in the short term. Supportive of the AUD/USD currency pair, however, was gold prices which climbed to a 1-week high of $1,624 an ounce after lackluster retail sales and producer price data out of the US. In other news, RBA's Governor Stevens spoke out in regards to the strength of the Australian dollar, and asked businesses to adapt given expectations for continued strength in the currency.