Australian Dollar
The Australian Dollar set about paring Friday’s gains yesterday off the back of a decrease in the producer price index (PPI) for the first 3 months of this year. The report published by the Australian Bureau of Statistics revealed a 0.3% drop and as a lead indicator for CPI, markets interpreted this as a warning the RBA may move to lower interest rates next week. After dropping below 1.0330, an improvement in China’s manufacturing activity helped the Aussie recover to settle around 1.0345; of note pertaining to the China release was that although manufacturing is still contracting it is doing so by a reduced margin and such a result will likely result in further monetary easing as the year progresses. Moving offshore, the nasty bite of risk aversion struck again and the Aussie continued on its downward run. As the political stage in France and The Netherlands casts doubt over the ongoing debt crisis recovery, investors sought safety and the Aussie was sold off to hit lows below 1.0280. Moving slightly higher the local unit trades at 1.0315 this morning ahead of critical inflation data due for release this morning. A figure below market expectations of 0.7% would increase speculation the RBA will move to cut rates next week and thus could be the start of a move back towards key support at 1.0200.

We expect a range today of 1.0250 - 1.0350

New Zealand Dollar
A resurfacing of European concerns has fuelled risk aversion overnight, sending the New Zealand dollar back towards critical support at 81.00. This support level has been in play since early March and further worries over European debt, combined with a lessening likelihood the RBNZ will move to raise interest rates any time soon, may see this level come under pressure. Dipping briefly through, it was not to be broken last night and NZD/USD recovers to open this morning at 0.8130. Recent pressure on the Australian Dollar has also failed to move the Kiwi higher on the cross rate and the antipodean pair trade relatively unchanged at 1.2690 (0.7880).

We expect a range today of 0.8070 – 0.8160

Great British Pound
Sterling has maintained recent gains against the Greenback over the past 24 hours despite a shift in investor sentiment as troubles in the euro-zone resurface. With the next local market mover not announced until tomorrow, being that of first quarter GDP, Cable has remained for the most part above 1.6100 although a drop to 1.6080 was witnessed following the resignation of the Dutch government. This morning the pair trades back at 1.6120 and strength in the Pound is also manifesting itself against the Australian and New Zealand Dollars. With both nations confronted by a risk sell-off, GBP/AUD has pushed higher to 1.5630 and GBP/NZD to 1.9835.

We expect a range today of 1.5570 – 1.5690

Majors
The euro dollar has tumbled from recent highs above 1.3200, as uncertainty surrounding French and Dutch parliaments combine with a slowing manufacturing sector in the indebted euro-zone. French President Nicholas Sarkozy narrowly lost the first round of the election on Sunday and followed by the collapse of budget talks in the Netherlands, which prompted Dutch prime minister Mark Rutte to hand in his party’s resignation on Monday, the single currency sank to intraday lows below 1.3110. Also weighing on the euro were the purchasing managers’ indices which indicated an unexpectedly sharp contraction in private sector economic activity. Manufacturing PMI for the euro-zone as a whole read 46.0 and services PMI came in at 47.9, the combined result the lowest in five months and a stark contrast to the slight improvement the markets were expecting. USD/JPY has also slid over the past 24 hours as uncertainty sends investors rushing to perceived safe havens, the Yen coming up trumps following recent concern over US fundamentals. Ahead today, aside from ongoing political developments from Europe, we have US consumer confidence and new home sales figures out tonight; the euro posting a mild recovery to start the day at 1.3150 and USD/JPY trading at 81.15.

Data releases:

AUD: CPI q/q

NZD: Visitor Arrivals m/m

JPY: CSPI y/y

GBP: Public Sector Net Borrowing

EUR: Industrial New Orders m/m; Belgium NBB Business Climate

USD: CB Consumer Confidence; New Home Sales; S&P/CS Composite-20 HPI y/y