The U.S. dollar weakened to a two-year low against the euro on this morning, as traders adjusted their positions ahead of a long holiday weekend and the March U.S. employment report due on Friday. The report is expected to show that 120,000 non-farm payroll jobs were created in March, up from 97,000 in February. In other economic news, the number of workers filing new claims for jobless benefits rose a larger-than-expected 11,000 last week, adding to the mixed economic picture that has been painted by recent US data. Markets now remain firmly focused on tomorrow??™s data release. Expect the dollar to maintain its range for the rest of today??™s session.
The Euro again took its cues from other currencies and economies overnight, as markets ready themselves tomorrow??™s US data release and the upcoming Easter weekend. Expect the currency to begin to consolidate today ahead of the weekend.
The British pound gave up a portion of its recent gains versus the euro and dollar overnight following the Bank of England's (BOE) decision to keep interest rates on hold at 5.25 percent. The market had expected the BOE to keep rates on hold although, having been surprised by rate hikes in recent months, many thought the Bank might increase by 25 basis points. Investors still believe the Bank will raise rates later this year, probably as early as next month. Expect the pound to settle in its recent range ahead of the Easter weekend.
The Japanese yen remained at five-week lows against the euro and a one-month trough versus the dollar as improving risk appetite on the back of firmer stocks prompted investors to chase high-yielding currencies. The carry trade is the practice of borrowing low-yielding currencies such as the yen to invest in higher-yield assets overseas. One key driver of carry trade activity has been Japanese domestic investors who, frustrated by low rates at home, purchased higher-return overseas assets abroad. Carry trades will remain at the mercy of risk appetite, but key indices were showing healthy conditions for risk, a scenario that may equate to a weaker yen going forward. Expect the yen to consolidate along with the chorus of other world currencies ahead of the Easter weekend.
The Chinese yuan edged up to a post-revaluation high against the U.S. dollar overnight after the central bank announced a surprise 0.5 percentage point hike in banks' reserve requirements. Economists speculate that a recent reserve ratio adjustment by China??™s central bank could prompt the market to try to push the yuan higher on Friday and early next week. One-year non-deliverable forwards, used as a proxy for long-term expectations of the exchange rate, did not move significantly after news of the reserve ratio change, continuing to imply a rate of 7.2700 in a year's time.
The Canadian dollar rallied to a 3-1/2 month high versus the dollar overnight, driven by much better-than-expected March jobs data, and a strong Ivey Purchasing Managers index. The strong data prompted increased speculation that the Bank of Canada's next rate move will be an increase.
The Australian dollar retreated slightly from its recent highs against the U.S. dollar, as sentiment remained bullish amid speculation that Australia's central bank may increase interest rates next month. Higher commodity prices also underpinned the local currency, which is expected to take a further cue from U.S. monthly jobs report to be released on Friday. AUD should also continue to draw support from higher gold and industrial metal prices in the near term, as industrial metals rallied across the board with copper hitting a five-month high and nickel setting a fresh record. Australia is a big exporter of industrial metals.
The Mexican peso consolidated with its recent trading range this morning, remaining well supported after consecutive daily rallies in Mexican equity markets.
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