The U.S. dollar finds itself lower across the board as market events overnight have slightly undermined its recent gains. Central Bank activity is at the fore this morning, with key rate decisions having already been announced in New Zealand and Britain. New Zealand hiked rates, as expected; the Brits held steady, also as forecast. Both currencies drew support from their respective decisions.
The euro is also on firmer footing, though gains have been capped by event risk ahead of this morning's European Central Bank meeting. No change is expected from the ECB, though any indication that they would be ramping up liquidity-providing measures in light of the debt crisis sweeping the euro zone could be met with some skepticism by traders. The ECB decision is expected within the half hour.
News that Spain was able to hold a successful debt auction also underpinned the euro and led to a narrowing of so called "peripheral" euro zone sovereign debt yields relative to benchmark German bonds. Q & A follows the euro rate decision and ECB president Trichet's comments will be closely scrutinized for evidence of the ECB's take on the direction and extent of the European debt crisis.
The Chinese provided an implicit vote of confidence for the euro when the head of their national pension agency said that the rough patch currently being experienced by the euro is normal amid such crises. Speaking of China, strong year-on-year growth in Chinese exports is providing a boost to the commodity-based dollar bloc currencies, particularly those of Canada and Australia. Any indication of growth in Chinese exports, which are fueled by their imports of raw materials, bodes well for the currencies of those countries that hold those commodities.
Aussie was also fueled by a stronger-than-expected jobs report in May. All eyes and ears on the euro zone as their rate decision is expected today.
Also on the data docket this morning are trade figures due out of both Canada and the US. Both should take a back seat though to Trichet, the ECB and developments out of the euro zone.
: The single currency was drawing support from multiple fronts this morning, though gains are somewhat limited ahead of the ECB rate decision on the horizon. Traders are more or less resigned to the fact that the ECB will leave rates unchanged. However, they are curious to see if the ECB will announce any measures similar to those put in place in the past month that would or could inject additional liquidity into the market.
Any additional measures would be viewed as an indication that the ECB may have a dour outlook for the current situation and that countries like Spain, Ireland and Portugal may be teetering closer to the brink than originally thought.
Spain, however, surprised markets to the upside and was able to hold a successful debt auction overnight, soothing euro sentiment somewhat. The Chinese also provide support by essentially affirming their confidence that the euro will weather the current storm and emerge from the debt crisis intact.
: Sterling eked out some gains on the back of the Monetary Policy Decision just announced. The MPC, as expected, held rates steady and simultaneously re-affirmed their support for a GBP 200 billion cap on their purchases of assets; the level at which it was capped in February. Evidence of recovery in the UK has been muted and no policy changes are expected anytime soon from the MPC.
: The Australian economy added 26,900 jobs in May, outpacing expectations for a rise of 17,500 positions. Unlike last week's U.S. figures, these jobs seemed to be largely permanent positions in the private sector; a good indication that the Australian economy is strong...and getting stronger. Aussie rallied on the news.
Aussie also garnered some spillover support from the rate hike out of New Zealand announced last night as traders were heading home. The Kiwi's rate hike was largely expected and priced in, but the accompanying statement seemed to pave the way for additional rate hikes at each of the remaining RBNZ meetings this year. Kiwi powered higher on the news.
: The Loonie rallied sharply against its U.S. counterpart in news that Chinese imports increased by 48.5% year-on-year in May. The Chinese, with their seemingly insatiable demand for raw materials, painted a picture that global growth may be back on track and provided a boost to oil prices and other commodities, as well as the currencies of those commodity-based countries; i.e., the Canadian dollar.