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By Andrew Wilkinson at IB:

The dollar is lower to start the week with its index versus a basket of most commonly traded partners weaker by 0.3%. One wonders how the smart money will position itself throughout the week in the expectation that labor market data scheduled for Friday might show the biggest employment addition since May 2007. Ever since the February report, dealers have been convincing themselves that a welcome change in the weather will break the back of the so-called jobless recovery. The euro’s weakness has largely been predicated on fiscal woes in the Eurozone’s peripheral nations and while that benefits the dollar the other school of thought is that the U.S. economy tends to zoom fastest on a recovery path.

U.S. Dollar – Nonfarm payroll data is expected to show that U.S. employers added 190,000 additional jobs during March. If that happens when the data is released on Friday it would be the largest gain in three years and would signal a return to growing confidence in the U.S. economic recovery. The problem facing speculators this week is that Friday is largely a closed day for markets on account of the Easter holidays. U.S. bond markets remain open until noon. To begin the week there is, however, an air of caution as most currencies rebound versus the dollar and continue Friday’s rally against the greenback.

A recovery in the prospects for metals prices helped underpin the theory of a recovery in global demand. The price of copper reached its highest since January as inventories fell while commodity prices firmed in general as the dollar’s rally faded. An in-line increase of 0.3% for consumer spending in February has helped parry the euro’s earlier drive higher with the single currency sliding to $1.3452 in the aftermath of earlier data.

Euro – Investors earlier continued to push the envelope in terms of a recovery from the brink for the euro. On two occasions in early trading the currency breached $1.3500 as shorts were squeezed forcing those at the end of their risk tolerance to exit positions. On Friday the euro traded as low as $1.3325. Eurozone confidence data was slightly better than expected this morning for the March period. The overall business climate indicator came in at -.32 while Eurozone industrial confidence was -10. Both were marginally better than predicted. Broad Eurozone economic confidence came in at 97.7 from 95.9 last month.

British pound – One of several weekend polls showed the opposition Conservative party extending its lead over the ruling Labour party by 2 percentage points. Other polls saw the gap maintain, which keeps the market on edge over how a hung parliament will ever make any headway in reducing the budget deficit. And as S&P affirmed its AAA credit rating on the U.K. it maintained its negative watch with the clear risk remaining that of a post-election political picture. The pound was unable to maintain its earlier breach above $1.50 against the dollar but remains higher on the session at $1.4962. It also made ground against the euro at 89.84 pence.

Canadian dollar – The Canadian dollar once again looks brighter to start the week against the backdrop of gains for metals and energy prices. The local dollar buys 97.78 U.S. cents.

Japanese yen – The yen suffered alongside early weakness in the dollar as investors woke up bright-eyed and bushy-tailed today. The dollar is marginally higher at ¥92.55 as Japanese investors and corporations prepare for fiscal year end on Wednesday.

Aussie dollar – The Aussie got a real tailwind after the words of RBA Governor Glenn Stevens set the market alight with fears of further imminent monetary tightening. The Aussie’s intraday peak at 91.51 compares to Friday’s weakest point at almost 90 cents. Governor Stevens warned that the central bank wasn’t doing consumers any favors by maintaining artificially low interest rates only to suddenly “hammer them unexpectedly” with higher rates.

It’s not the first time that Mr. Stevens and his team have indicated some discomfort on this front. Today he warned house price speculators against believing they could get rich quick as home prices accelerated. Earlier in the month Assistant Governor Philip Lowe once again pointed to the below-average cost of borrowing. It seems that Aussie buyers are finding comfort at a time when investors had felt that the end of the rate tightening cycle was at or near its end.

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