USD - The USD begins the week lower against a number of its major counterparts as investors take dovish commentary from Chairman Bernanke as a signal that the FED favors further measures to stimulate the economy. In an address to the National Association for Business Economics, Bernanke said that while recent labor market data has been quite positive, the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. The comments echoed similar statements from the Fed over the past several months and reassured investors that US interest rates are likely to stay at or near 0% through 2014. While this isn't new news, any reference to the Fed's exceedingly accommodative policies gives investors reasons to sell the dollar. Moreover, with Bernanke showing his clear bias for lax monetary policy, investors can't help but to consider that the Fed would introduce another round of quantitative easing should the economy show any further signs of weakness. For the week ahead, investors will take note of consumer confidence and Richmond fed data both due on Tuesday. The middle of the week sees the release of durable goods on Wednesday and GDP and weekly jobless claims on Thursday. The week closes out with personal income and U. of Michigan confidence on Friday. Central bank dovishness will certainly weigh on the dollar in the near term, but its declines will likely be contained to within its recent ranges as the overall US economy continues to outperform many of its peers.
EUR - The EUR strengthened against the USD, as Germany said it may back plans to increase the debt?crisis rescue fund, before the region's finance ministers meet on March 30th. Chancellor Angela Merkel stated that Germany is in favor of backing plans for the temporary and permanent euro?area rescue funds to run in parallel. Ministers are due to discuss plans to combine the temporary EFSF and its permanent successor, the European Stability Mechanism, in Copenhagen this Friday and Saturday. A larger firewall has helped to offset Spanish contagion fears as well as last week's concerns over Chinese growth. A stronger than expected German confidence (IFO), registering at 109.8, further underpinned the EUR. Euro area inflation data for March is due at the end of this week. A substantial fall to 2.3% in March is expected, from 2.7% in February. Euro area M3 growth data could also attract attention. It seems likely the LTROs have halted the decreasing trend in the growth rate, and that we could see a rebound. In addition, German CPI and unemployment data are likely to attract attention.
GBP - Sterling appears range bound (<1% range last week) around the 200?day moving average of 1.5854. Last week brought disappointing data but the market was encouraged by the budget. We are opening stronger this morning as we push toward the recent high of 1.5950, a technical level we have been unable to breach. This week is light on economic releases, with UK GDP (exp ?0.2%) to be the highlight. With slowing GDP, the BoE will continue to monitor whether another round of easing will be necessary to spur on the economy.
JPY - JPY is down against the USD and underperforming the majors. USDJPY remains near the middle of its 82.20 to 84.00 range since mid?March, though near term movement has been congested around 82.50. Stronger domestic data is likely to provide for further yen strength, thus limiting the potential for upward movement in USDJPY, however today's performance complicates this. Thursday's employment data is expected to remain unchanged while industrial production figures are expected to indicate a level of expansion not seen since January 2011.
Commodity Currencies - The CAD and AUD are both off to a strong start to the week with rising stock and commodity prices encouraging investors to assume riskier positions. The loonie gained by more than half of a percent this morning against the USD, supported by the higher price of oil and the recent string of strong economic data out of the US, Canada's primary trading partner. The CAD's correlation with the price of copper has also been on the rise as of late, with the pair posting a 58% positive connection today as the price of the industrial metal closely tracks expectations of future economic growth. Similarly, the AUD is on the rebound this morning, gaining against the majority of its G10 counterparts as investors seek its relatively high yields. Investors will take note of Australian home sales data on Thursday and Canadian GDP data due on Friday, with both expected to show modest improvement.
MXN - The Mexican peso strengthened at the start of the week as speculation on improving US growth outlook boosted risk appetite. Fed Chairman Ben Bernanke said today that a decline in the unemployment rate in the US may reflect a reversal of the unusually large layoffs that occurred during late 2008 and 2009. As the destination for 80% of Mexico's exports, US growth will be bullish for Mexico's economy and the peso.
RMB - The Chinese Yuan reversed from an earlier advance after PBoC set its daily reference rate at a record high amid speculation that policy makers will widen the currency's trading band. CNY fixing fell 33pips at 6.2858 vs. 6.2891 on Friday, while spot rebounded back to Thursday's level of 6.3150. Former PBoC Deputy Governor Wu Xiaoling was quoted saying this morning that the exchange rate's trading band may widen from 0.5% to 0.7%, another step towards becoming a freefloating currency.