Australian Dollar
The Australian Dollar fell from opening levels above 1.0370 yesterday as renewed concerns surrounding the European debt crisis weighed on local share markets. Uncertainty surrounding the widening of the Yuan trading band also generated some short-term downside pressure and by early afternoon in Sydney the Aussie was trading at 1.0315 against the Greenback. Although concerns for Europe remain, they lie under the surface this morning as positive figures from the US Retail sector boosted sentiment overnight. This morning the local unit trades at 1.0350 with the next potential market mover pegged to be the RBA’s monetary policy meeting minutes due out this morning.

We expect a range today of 1.0280 – 1.0380

New Zealand Dollar
The New Zealand Dollar has held above 0.8180 since yesterday’s local session after Prime Minister John Key announced the currency ‘overvalued’. Speaking at the Association of Southeast Asian Nations headquarters, he acknowledged the government is considering options to resist a rise in the exchange rate. Markets deemed the comments to hold little power as Key himself admitted options are limited in standing against a strong New Zealand Dollar. Hovering around the 0.82 cent handle it is here we open this morning against the Greenback; risk-on markets have favoured the Australian Dollar on the cross and NZD/AUD sits lower at 0.7915.

We expect a range today of 0.8150 – 0.8230

Great British Pound
Sterling was buoyant over night as European and US markets reacted to unfolding events in Europe. With Spanish debt concerns mounting, and Spanish 10-year bond yields above 6%, investors sought the relative safety of UK assets, pushing the pound to the strongest levels since September 2010. The move pushed GBPEUR close to 1.2180, before easing back towards 1.2100 amidst fresh data out of the US fuelled renewed interest in the Euro. Across the day, GBPUSD remained steadily within its range of 1.58-1.60, GBPAUD moved up slightly to close around 1.5350, and GBP/NZD also gained on a move towards 1.9400. Looking ahead today UK inflation numbers will come to the fore at 1930 (AEST) when key CPI figures are released: the market consensus expecting a CPI reading of 3.5% y/y.

We expect a range today of 1.5290 – 1.5410

Majors
The Euro fell below 1.3000 overnight, forging two-month lows against the Greenback as yields on Spanish bonds continue to rise. 10-year debt rose to 6.16 percent fuelling concerns for the sustainability of Spain’s borrowing costs ahead of two bond auctions scheduled for this week. The momentary peek below 1.3000 was just that and an unexpected 0.8% increase in core retail sales out of the US bolstered risk sentiment, sending the Euro over a cent higher to hit highs of 1.3140. The subsequent move away from US based assets into risk instruments has kept the Greenback suppressed, and hence we see the Euro holding at overnight highs this morning and the Japanese Yen strengthening to 80.40. Event risk lies ahead today with the ZEW survey for German Economic Sentiment as well as an auction of short-dated Spanish bonds, both scheduled for the European session. Building permits in the US are listed to follow and a better than expected number may combine with last night’s Retail Sales to appease recent concern surrounding softer US fundamentals.

Data releases:

AUD: Monetary Policy Meeting Minutes; New Motor Vehicle Sales m/m

NZD: No data due for release

JPY: Revised Industrial Production m/m; Household Confidence

GBP: CPI y/y; RPI y/y; DCLG HPI y/y

EUR: German ZEW Economic Sentiment; CPI y/y; ZEW Economic Sentiment

USD: Building Permits; Industrial Production m/m; Housing Starts

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