Australian Dollar
Fears of an impending Greek exit from the euro sent markets into a tail spin yesterday, the euro breaking critical support levels and taking the Australian Dollar down with it. Earlier in the day, trade was range bound between 0.9750 and 0.9780 as a Westpac/Melbourne Institute leading index survey reported economic activity to be well below its long term trend. Though increased risk aversion soon grappled the markets as it became evident EU officials were forming a contingency plan for a possible Greek exit. The Australian dollar fell below 97 cents touching lows near 0.9690 before paring some of its losses to trade back at 0.9750 this morning. During local hours the Aussie is likely to take direction from HSBC Flash Manufacturing PMI out of China ahead of PMI figures from the euro-zone, both likely to affect sentiment towards global economic growth. Another break below 0.9700 could possibly see support at 0.9660 tested.

We expect a range today of 0.9700 – 0.9800

New Zealand Dollar
The risk lever is decisively in the ‘off’ position this morning following the EU summit overnight; an absence of local data in New Zealand unable to provide any domestic support. After trading in a narrow range just above 75 cents to the Greenback earlier on in the day, nervous investors soon pushed the Kiwi to lows near 0.7460. Opening today back at 0.7515, the release of the annual; budget positions itself to be the next key risk event as well as Chinese PMI data. Movements against the Australian dollar see familiar levels as the pair remains in a consolidation pattern around 1.2980.

We expect a range today of 0.7470 – 0.7560

Great British Pound
Sterling has fallen below 1.5700 against the Greenback overnight as safe-haven flows combine with a disappointing read for UK retail sales for the month of April. Driven largely by a record fall in petrol sales, the 2.3% drop was much larger than the expected 0.8% and these figures were the catalyst that began the slide below $1.57. Further losses in the Pound were prevented by the revelation from Bank of England’s Minutes that the vote for further quantitative easing was 8-1 in favour of keeping policy unchanged at the last central bank meeting. Sliding to lows below 1.5680, Cable has recovered to open today at 1.5690 ahead of revised first quarter GDP figures due out tonight. Against the anipodeans, risk off trade has directed the cross rates higher although a recent softening sees the GBP/AUD at 1.6080 and the GBP/NZD at 2.0870.

We expect a range today of 1.5990 – 1.6120

Majors
With no firm commitment either way from officials in Europe, speculation continues as to build as to whether Greece will exit the euro and if so how messy it could prove to be. Uncertainty remains the key theme in the absence of answers and the Euro has fallen accordingly after officials agreed to prepare a scenario for a Greek exit at last night’s summit. As investors flock to the perceived safety of alternative instruments the troubled currency has fallen below $1.26 against the Greenback since the 23rd August 2010. Breaking this key support implies the euro could be subject for further moves south should the uncertainty continue. New French president is also unleashing the cat among the pigeons, joining Italy PM Mario Monti in the pro-Eurobond camp; an instrument former President Sarkozy repeatedly rejected. With markets not knowing what else to do they retreated into the US Dollar and Japanese Yen seeing the EUR/USD trade this morning at 1.2585 and the EUR/JPY trades on the 100.00 handle. Bank of Japan held their fire yesterday, doing little to move the markets and officials may be looking for a better time to weaken the Yen, a time when markets are less volatile and safe haven flows are not as strong. USD/JPY currently sits just below 0.7950.

Data releases:

AUD: No data due for release

NZD: Trade Balance; Annual Budget Release

JPY: BOJ Monthly Report

GBP: Revised GDP q/q; Prelim Business Investment q/q; BBA Mortgage Approvals

EUR: German Flash Manufacturing PMI; German Ifo Business Climate; Flash Manufacturing/Services PMI

USD: Core Durable Goods Orders m/m; Unemployment Claims

CNY:
HSBC Flash Manufacturing PMI