Dollar May Rise as UK Markets Return, Aussie at Risk on Budget News

Talking Points

• US Dollar, Yen May Rise as UK Markets Return from Bank Holiday
• Aussie at Risk if Government Spending Cuts Spur RBA Rate Cut Bets
• Euro Volatility Unlikely on German Industrial Production Report

The return of UK markets from a bank holiday yesterday may prove to be the most significant driver of early price action as traders in the world’s top foreign exchange trading center prices in the weekend’s political developments in the Eurozone. FTSE 100 stock index futures are trading slightly lower ahead of the opening bell in London, hinting at a cautiously risk-averse tone that may underpin the safe-haven US Dollar and Japanese Yenagainst their leading counterparts.

Australia’s 2012-13 budget is also due to be unveiled by Treasurer Wayne Swan. The government has made a statement of delivering a surplus this time around after four years of deficits. Such a feat will require sharp spending cuts, which markets speculate will come in around 2.5 percent of GDP. Australian Prime Minister Julia Gillard has argued that retrenchment on the fiscal side will pave the way for the RBA to blunt the impact on growth with deeper rate cuts. With that in mind, the release may prove to weigh heavily on the Australian Dollar as the degree of austerity is made clear.

German Industrial Production figures amount to the only bit of data scheduled to cross the wires in European hours. Expectations call for output to rise 0.8 percent in March, a nominal improvement after a 1.3 decline recorded in the previous month. Looking past month-to-month volatility however, the reading will do little to disturb the overall down trend playing out for over a year now. As such, it seems unlikely to be meaningfully supportive for the Euro, particularly in light of the recent slump in manufacturing PMI readings.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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