Dollar Weakness Limited as Incoming Data Suggests Strong Payrolls (page 2 of 2)

This may be due to the fact that most traders do not expect the Bank of England to raise interest rates tomorrow despite continual upside surprises in UK data. Consumer confidence hit a 4 month high while the service sector activity index accelerated from 57.4 to 57.6. The economy may be improving, but it has not improved enough to convince the majority of the monetary policy committee members to vote in favor of higher rates. When rates are left unchanged, the central bank does not release a statement. We do however expect the balance of votes to shift in favor of a rate hike. The last minutes released from the March meeting revealed an 8-1 voting record with the 1 dissenter favoring a rate cut. The minutes from tomorrow's meeting will be released on April 18th.

Japanese Yen

The performance of the Japanese Yen was mixed today with the currency rising against the US dollar and British pound but falling against the Australian and New Zealand dollars. There was no data released last night. In his speech at an economic seminar, Bank of Japan Deputy Governor Muto said nothing new about the central bank's monetary policy. He indicated that rates will be adjusted as the economy expands but will remain very low for some time. Leading indicators is the only piece of noteworthy data expected tonight. Economic growth has been lackluster since the beginning of the year and we expect the report to reflect that.

Commodity Dollars (AUD, NZD, CAD)

The big activity today was in the commodity currencies. The Australian dollar hit a fresh 10 year high, dragging the New Zealand dollar up with it. This represents a very strong recovery after the Reserve Bank of Australia's decision to leave interest rates unchanged took the AUD/USD down to a low of .8065. The out performance of the Australian dollar is primarily due to the sharp rise in gold prices, which hit a 5 week high. The Canadian dollar ended the day unchanged but a closer look at the currency's activity reveals a sharp intraday reversal as well. Unsurprisingly, oil prices are down after the release of the UK soldiers. The Canadian dollar should be the main currency in play tomorrow since Canada is the only country releasing meaningful data; namely employment and IVEY PMI. Jobs and manufacturing sector activity are both forecasted to increase but the pace of job growth is expected to slow. Recent strength in the Canadian dollar should also begin to weigh on the manufacturing sector, raising the risk for a softer IVEY PMI number.