Forex: Stronger Economic Data Bolsters Risk Appetite

U.S. traders are back from their 3 day weekend and have brought their jovial and relaxed moods with them. Most of the higher yielding currencies rebounded against the U.S. dollar this morning thanks to the combination of stronger economic data and a short covering rally. The most pronounced gains were seen in the commodity currencies such as the Australian and New Zealand dollars following the hawkish tone in the RBA minutes. The German ZEW survey also printed weak but not as weak as the market had anticipated while manufacturing sales in Canada rose for the fourth consecutive month by 1.6 percent.

The stronger than expected U.S. Empire State Manufacturing survey also helped boost risk appetite which printed at 24.91 compared to a forecast of 18.00. The U.S. manufacturing sector shows no signs of slowing down in February as manufacturing conditions expanded by the fastest rate since October. The biggest improvements were seen in inventories, average workweek and number of employees. Despite the strong improvement, there were pockets of weakness within the Empire State manufacturing survey including the decline in new orders and shipments. Nonetheless the strong number will lead the markets to expect a similar improvement in the Philadelphia Fed index which will be released on Thursday. Later this afternoon, we have the Treasury International Capital flow report and the NAHB Housing Market Index due for release.