By Omer Esiner of Travelex
The dollar firmed in overnight trade as most financial markets reopened following the long Easter weekend.
Investors bid the greenback higher amid a backdrop of generally solid domestic economic news and renewed sovereign credit concerns in the eurozone. Yesterday's upside surprises to U.S. service-sector data and pending home sales came on the heels of Friday's solid U.S. jobs report, which showed the strongest net creation of jobs since March 2007. The figures highlighted an accelerating U.S. recovery, which could eventually shorten the time line for
The euro fell across the board after sources in Greece said the government will push to amend the deal reached last month with the EU to bypass any IMF involvement in financial aid to Greece. Athens is worried that the strict reforms the IMF will demand in return for financial aid will further stoke political and public unrest in Greece.
The Australian dollar soared to a two-and-a-half-month peak against the greenback overnight after the Reserve Bank of Australia raised its key cash rate for the fifth time since October and signaled that further policy tightening is in the pipeline. The rise in the Aussie, along with firmer resource prices in general, pushed other commodity currencies like the New Zealand dollar and Canadian dollar broadly higher as well.
Investors await the minutes from the Fed Reserve's mid-March monetary policy meeting, which are scheduled for release at 2 p.m. EDT.
: The euro fell across the board as a result of reports that Athens is trying to renegotiate last month's deal with the EU and IMF to bypass any involvement of the IMF in financial aid to Greece.
The reports claim that Greece Prime Minister, George Papandreou, has been receiving information from the IMF about possible conditions that it would impose on Greece in return for financial aid in the event of a further escalation in the nation's debt crisis.
Those conditions, like painful spending cuts and tax hikes, are likely to further stoke political and social unrest in the nation that is has already seen massive protests and strikes by unions and government workers.
The reports rekindled sovereign credit concerns in the eurozone and undermined the appeal of the euro. Greece must refinance billions in debt in the coming months, and difficulty in doing so would likely further add to the euro's broadly heavier tone.
: The Australian dollar rose to a new two and a half-month peak against the dollar and a nine-year high against the New Zealand dollar after the Reserve Bank of Australia raised its key cash rate by 25 basis points to 4.25%.
It marked the fifth quarter-point rate hike since October. The market had been split on whether the central bank would lift rates again at this time after a downside surprise to a recent retail sales report suggested that previous RBA hikes were putting the brakes on domestic demand.
Because Australia's economy has, and should continue to benefit from voracious Asian demand for its key resources like coal and iron ore, monetary officials indicated in their accompanying statement that lending rates will likely continue to rise in the months ahead.
The Aussie's improving yield appeal should continue to provide it with broad support going forward. However, it does remain vulnerable to further monetary tightening in China, which raises concerns about a broader slowdown in demand for resources and regional growth.
: The Canadian dollar soared to a new 20-month high against the greenback and a 30-month peak against the euro overnight. The loonie continues to benefit from firmer crude oil prices (oil hit an 18-month high of more than $86 a barrel yesterday), improving domestic economic fundamentals, and the relative health of Canada's fiscal balance sheet. Combined with improving demand in the U.S., Canada's largest trade partner, the improving domestic backdrop has spurred speculation that the Bank of Canada could move to lift rates sooner than previously expected. A strong Canadian jobs number on Friday would likely further such speculation and add to the Canadian dollar's broadly positive tone.
: The pound tumbled after Britain's prime minister, Gordon Brown, called a general election on May 6. Political uncertainty ahead of the election has broadly weighed on the pound in recent months. The risk of political gridlock in the U.K. suggests that any government my have a very difficult time enacting difficult but much-needed fiscal reforms to bring down the government's unsustainably high deficits.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.
You can view his daily reports, recording briefings, and quarterly reviews posted
. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.