USD – The US dollar is mixed against most major currencies as EUR regains its footing and after JPY breaks record lows. In March, the market was rather optimistic over the US economy as the dollar index DXY reached 83.22, its highest levels in almost seven months. However, since the recent release of meager ISM readings combined with the lowest number of jobs created in nine months, it’s safe to say the USD has been more subdued this past week. With little news until Thursday, the market will be reactive to headline events abroad as to gauge the direction of the greenback. Otherwise, the USD looks to trade quite muted ahead of the Redbook index on Thursday and Producer Price index this Friday where inflation is forecasted to reach 1.9% in March from 1.7% prior. Analysts are closely watching PPI levels this week to speculate when the Fed's bond-buying stimulus will draw closer to an end.
EUR – The euro reversed a string of recent losses vs. the dollar after last Friday’s soft US jobs report. The single currency climbed back to 2-week highs above $1.30 from lows at $1.2750 last week, as concerns about the durability of the US economy provided a lift to the euro. Despite its gains, the euro’s rebound appears fleeting as challenges in the region continue. The euro zone Sentix index, a gauge of economic sentiment, fell to -17.6 in April, the lowest level since last November as Cyprus’ troubles and the ongoing recession continue to weigh. The ECB left interest rates unchanged at 0.75% last week but also left open the possibility of further rate cuts to spur the economy. Germany remains among the few bright spots in the region after reporting industrial output expanded by 0.5% in February, raising hopes the economy will continue to gain momentum and lead Europe out of recession.
GBP – The pound remained lower against the dollar on Monday trading at around 1.5249, down 0.58% on the day. The British outlook remains a bit uncerntain, even though the pound received some support from various Japanese investors looking for higher-yielding assets since the BoJ’s recent announcement of bold easing measures. The ratings agency S&P kept the UK’s triple-A sovereign credit rating in place though it held the outlook at negative due to poor economic performance and little solid action towards reducing its budget deficit. We could see further declines in the pound if the BoE minutes next week show signs the Monetary Policy Committee members will shift positions toward the three members who voted in favor of more quantitative easing. A large majority of analysts and banks are anticipating GBP/USD to get back on the bearish path both short and long term.
JPY – The Japanese yen tumbled to a near 4-year low against the US dollar after the BoJ kicked off its aggressive monetary easing program announced last Thursday. The first set of bond-purchasing occurred today, which began the BoJ Governor Kuroda’s commitment to inject close to $1.4 trillion into Japan’s economy within 2 years. The bond-buying operation includes 1 trillion yen of government bonds with maturities between 5 and 10 years and 200 billion yen bonds with maturities over 10 years. Analysts say that Japanese investors will be buying higher-yielding assets abroad and to expect further downward pressure on the yen but not to hold for long if further evidence of a slowing US economy continues.
Commodity Currencies – The AUD strengthened against the USD, as it recovers from early weakness driven by a softer construction PMI. The AUD sees support around its 50-day moving average at the 1.0345 level until Wednesday’s release of employment data, which will compliment expectations for RBA policies. In addition, China’s release of CPI data on Wednesday will determine the outlook for domestic monetary policy, as well as growth in Australia, as its largest trading partner. The CAD weakened against the USD, but was stronger than levels hit after Friday’s disappointing employment data. The focus this week will be the BoC’s business outlook due later today, and the housing starts and building permits data due tomorrow. Market participants expect the USD/CAD to trade between the 1.0160-1.0240 levels until the release of domestic economic data.
RMB – The Chinese Renminbi is declining after reaching a 19-year high following the PBOC’s lowering of the currency’s reference rate to 6.2650 per dollar. It is currently trading at 6.2033 after hitting 6.1986 on April 2, the highest level since 1993. Direct currency trading between the Australian dollar and the renminbi will begin this week, said Julia Gillard, Australian prime minister, earlier today. Australia becomes only the third country, after the United States and Japan, to receive approval to convert its currency directly into the tightly-controlled yuan. This move to permit direct trade between the two currencies should continue to expand the financial links between the two countries and strengthen the $120B/year trade relationship.
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