Risk Rallies Despite Soft US Data, Aussie GDP Ahead

Euro rose above 1.44 as Germany backed off the idea of restructuring Greek debt and Fitch affirmed Greeces rating. The Canadian dollar led G10 currencies after the BOC warned of eventual rate hikes. The key release in the upcoming session will be Australian GDP.

As Ashraf noted on Friday, the 55-day moving average was key in EUR/USD and the close at that level prompted a full cent rise today. The S&P 500 gained 1% for the fourth consecutive climb despite disappointing US economic news. The Chicago PMI confirmed the recent slide in regional manufacturing data as it fell to 56.6 from 67.6 (exp: 62.5). This is something we have been warning about for a number of weeks and puts a definite downside risk in Wednesdays ISM manufacturing report. The Conference Boards consumer-confidence index fell to 60.8 in May from a revised 66 in April (exp: 67.5). Another data point that pointed to risks ahead for the US was a 3.6% y/y decline in the Case-Shiller house price index (exp: 3.4%).

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The Bank of Canada held interest rates at 1.00% in todays meeting and policymakers said low rates will eventually be raised. Market pricing now suggests a 59% chance of a hike in October compared to 54% pre-announcement. CAD was the strongest G10 currency but the strength is more of a reflection of broad risk appetite and a 2% gain in oil than anything the BOC said.

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Australia releases Q1 GDP data at 0130 GMT with the consensus estimate at -0.3% q/q. The market is undoubtedly priced for something weaker after Treasurer Swan warned yesterday of a large drag due to the Queensland floods and Japanese disaster. Given this, AUD may gain on a reading as low as -0.5% as markets price in stronger growth and rate hikes later in the year.

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