It seems that the focus has shifted away from the Fed's easy monetary policy stance and weak US economic data, as traders are selling off higher-yielding currencies in favor of the US dollar. Only the January retail sales and February consumer confidence data are due from the US this week and these events could spur volatility among dollar pairs in the coming days.
Last Friday, Finance Minister Aso downplayed the yen's weakness and even said that they were surprised to see the yen drop too quickly. This resulted in a brief yen rally as traders thought that the Japanese government won't be too aggressive when it comes to keeping the yen's value low. However, these remarks may have simply been politically-motivated prior to the weekend's G20 Summit so that Japan won't be placed in the hot seat and blamed for inciting a currency war. The yen underwent a fresh selloff during the early London sesison today though as former BOJ Governor Kuroda was quoted saying that the central bank could do more to ward off deflation. This should set the stage for the upcoming BOJ rate statement later on this week.
Political troubles in both Spain and Italy have come back under the limelight last week, weighing on the euro prior to the ECB rate statement. Draghi did mention that he will be keeping a close eye on the euro's rallies and that the recent ones aren't good for inflation. Underlying fundamentals for the euro zone still haven't changed, although there was a considerable improvement in their fiscal landscape. Plenty of risks still remain and the lack of hard-hitting data from the euro zone this week could leave traders selling euro pairs off based on last week's central bank rhetoric.
Although upcoming BOE head Carney's upbeat comments lifted the pound during last week's trading, the BOE still remains committed to its loose monetary policy as the UK needs stimulus to keep growth afloat. Remember that the UK is still facing the threat of a triple-dip recession as the Q4 2012 GDP posted a negative reading. CPI and retail sales are coming up this week and these reports should paint a clearer picture of whether the central bank has room and reason to actually increase asset purchases or cut interest rates. The BOE inflation report and Governor Mervyn King's speech are also scheduled this week and, if these events confirm that the UK is still on weak economic footing, we might see the pound resume its selloff.
The Australian dollar sold off aggressively lately as a downbeat RBA statement supported by weaker than usual economic figures weighed on the commodity currency. It seems that markets are pricing in their expectations for a rate cut for the March RBA statement as early as today since growth, consumer spending, and hiring have all remained weak. There are no new reports from Australia for the rest of the week so the pair could continue to move south unless risk appetite improves.
The New Zealand dollar is being dragged down by the negative sentiment for Australia, New Zealand's closest economic neighbor. On top of that, weak jobs data is expected to result in poor consumer spending for the last quarter of 2012 and we'll see the actual figure later on this week. Traders seem to be pricing in their expectations for another decline in retail sales as the pair is currently testing significant support levels.
Weak Canadian jobs data triggered a sharp selloff for the Loonie late last week as the figure posted a decline in hiring for the month. This could translate to weaker consumer spending and growth down the line and it doesn't help that the BOC already pushed back their interest rate hike schedule. No new reports are due from Canada this week but the change in economic outlook for this country could keep weighing on the Loonie.
Only the Swiss CPI report is due from Switzerland this week and this doesn't usually have a huge impact on the franc's price action. Franc pairs tend to react more to news and economic updates concerning its counterparts so better keep close tabs on the goings-on in the US or euro zone if you're trading USD/CHF and EUR/CHF. Bleak demand for European currencies (EUR and GBP) stemming from last week's dovish monetary policy statements from the ECB and BOE seem to be renewing demand for the Swiss franc so far.