USD - Last week the February non-farm payroll headline number was essentially in line with expectations (192,000 vs. 196,000 expected), while private payrolls were a marginally stronger than anticipated (222,000 vs. 200,000 forecast). The decrease in unemployment to 8.9% from 9.1% is encouraging. Broad unemployment fell for the third straight month to 15.9%, its lowest point since April 2009. In the US, a slow start to the week means that potential market movers are saved for Thursday and Friday with the main event, February retail sales, on Friday. A strong gain in auto sales and a rebound in building materials are expected after bad weather depressed January sales. This will give a boost to overall retail sales with American consumers expected to remain in a spending mood, particularly given the lift to disposable incomes from the recent tax cuts and somewhat better weather. Also on Friday, the University of Michigan consumer confidence is anticipated to increase slightly. Earlier today, Dallas Fed President Fisher spoke on the US economy warning that he would vote to scale back or stop the central bank's $600 billion bond-buying program if it proves to be demonstrably counterproductive. The liquidity tanks are full, if not brimming over. The Fed has done its job, he added. Fisher is one of the new hawks who have rotated to become a voting member of the FOMC this year making his comments regarding the asset purchase program of particular interest.
EUR - The euro, having breached resistance at its February peak of $1.3862, has jumped to a four-month high, beginning the week above $1.40. The move comes as expectations grow that the ECB will hike interest rates as soon as next month. ECB President Trichet told reporters that rates may rise in April as the central bank looks to slow inflation, which has now outpaced the Bank's 2% target for several months. However, the single currency met resistance after Friday's downgrade of Spain's sovereign debt by Fitch's rating agency and an overnight downgrade of Greece by Moody's. While expectations of higher rates will provide significant support for the common currency in the near term, continued concerns over Eurozone debt will likely keep the EUR relegated to its recent ranges, albeit towards the top.
GBP - Last week Sterling traded in a tight one cent band against the USD as the currency appears to be catching its breath following the recent move higher. The BoE is widely expected to keep rates steady at its meeting on Thursday. Sentiment still remains that they will have to increase rates sometime this year as inflation is running at double the BoE's target of 2.0%. With oil prices spiking higher, U.K. manufacturers have said they plan to raise prices to help defray their higher manufacturing costs. This will put additional pressure on inflation - and thus lends support to the GBP.
JPY - The Yen is strong today, but in line with most of the non?USD majors. In the midst of a donation scandal, Japan's foreign minister, Seiji Maehara has resigned, but there has been essentially no currency reaction. Data today included a strong coincident index, which rose to 106.2 and the leading index, which disappointed expectations, but still rose to 101.9. The key driver of the USDJPY pair remains interest rate differentials between the US and Japan, and risk aversion. Once we are through the first quarter, USDJPY will likely drift higher for the remainder of the year.
CAD - The CAD starts the week near a three-month high as the price of oil surged to nearly $107/bbl. Crude, Canada's primary export, rose to a 29-month high as increasing violence in Libya has raised concerns that global supply disruptions may increase. While energy prices will be the primary market driver this week, investors will take note of several key Canadian economic releases, including housing starts, international merchandise trade, and an employment report. While the Canadian economy is facing a potentially difficult road ahead with a strong currency making the nation's goods and services relatively more expensive, rapidly rising energy prices will keep the loonie well supported in the near term.
MXN - The Mexican peso rose almost 1% against the greenback last week when crude oil, the nation's second largest export rose to a yearly high. Domestically, Mexico left its benchmark overnight lending rate at a record low of 4.5%, but the central bank changed the tone of its policy in acknowledging increased risks to the inflation outlook as a result of geopolitical tensions and weak crop growth due to weather conditions. To curb peso gains, the central bank has been buying as much as $600million monthly since March 2010, boosting foreign reserves. In the near term, the peso should remain well supported by the rising oil prices.
AUD - The AUD is modestly higher this morning as commodity currencies have been broadly supported by rapidly rising energy and precious metal prices. However, the AUD has been relegated to its recent ranges as investors begin to consider the effects that prolonged high oil prices may have on global growth. The market will take note of Australian employment and housing reports this week and trade balance and CPI data out of China, Australia's primary trade partner. While rising commodities will provide support for the AUD in the near term, high prices and a strong currency could ultimately weigh on the export-driven Australian economy.