The commodity complex posted a major headfake. Gold (XAU/USD) had initially rallied into the highs just below the crucial $1075 zone but the level proved insurmountable and the precious metal would eventually follow the risk trade lower into the $1063 zone. This kept the so-called commodity currencies trading with an overall offered tone (good amount of selling interest). AUD/USD plunged from session highs just above 0.8700 to trade by 0.8630/40 as we write. USD/CAD was a one way ride up. The pair started out trading near 1.0680 and would end nearly 100 pips higher on the day. The meltdown in commodities coupled with credit rating concerns regarding a major Canadian bank spooked USD/CAD shorts.

The biggest piece of news now in Asia looks to be Japanese machine tool orders. While this is likely to have little fundamental impact on the yen, the overall tone to risk could move on a number that diverges significantly from last month’s 63.4% annual run-rate. Waning risk appetite should see the yen crosses follow lower.

Oil prices have reacted to the softer tone of the USD this morning by pushing higher.  Following the technically significant break below the $71 /b level on Friday, the outlook for the Brent futures contract has been weakened.  Excess supply should pressure oil this year.  However, buyers lifted Brent back above the $70 /b level this morning.

Sterling is on the back foot.  EUR/GBP has broken up towards 0.8800, and cable, whilst off the days’ lows is trading down close to 1.5560.  Weekend opinion polls highlighted the danger that this spring’s UK general election could bring a hung parliament.  This has been in the market’s mind since the end of last year, though with the election nearing it could be increasingly problematic for market sentiment.  Most worrying is the fear that without a clear majority the government’s ability of deal with the budget deficit would be hindered.  Weak coalition governments in countries such as Italy and Belgium have in the past been associated with large debt problems.  Talk over the weekend from an ex-IMF official linking the UK’s debt issues with that of Spain and Greece has not helped sentiment in the UK.  There were no UK data releases this morning.  Key focus this week will be the release of the BoE’s Inflation Report. 

Comments from Chinese Commerce Minister Zhong that the yuan is under ‘great pressures’ to appreciate will heighten speculation that a move may be seen later this year.  At the G7 meeting, Japanese Finance Minister Kan suggested that the G20 meeting would be a better forum to discuss China.  Growing US-Chinese trade tensions may have reduced the will of some finance ministers to have a public discussion on China this weekend. 

Canadian housing starts are due this afternoon.   

Although the session was subdued ad dominated by range bound trading, the overall tone of the day was dour, with equities taking another hit with the Nikkei looking soft to the tune of 1%. Following a week of strong gains due to risk aversion, the USD/JPY remained buoyed between 89.15 and 89.45 for the better part of the day. EUR/JPY remained in a range roughly between 121.50 and 122.00 for the session with no real data releases or news to spark moves.

Looking ahead to the week’s data in Asia, we have some top tier numbers to look to including; Chinese Trade Balance due Wednesday, Aussie employment and unemployment data for Thursday, along with Chinese PPI and CPI, and finally New Zealand Retail Sales wrapping it up on Friday.