Morning Currency Wrap for Monday April 18, 2011

It's The Debt Stupid  - I was going to start this commentary about how debt concerns was weighing on the Euro when a shocker came across the news feeds at around 9:01 am EST - Standard & Poor's revised its rating outlook on the United States to negative. Wow, I didn't think a US based credit agency had the guts to do it. Well its done now and the USD is down across the board. In overnight trading, China got things going with its fourth hike in bank reserve ratios this year and its seventh such move since October signaling that it is determined to combat inflation. In the European secession, the combination of the results of the Finnish vote and talk that Greece will be forced to restructure its debt caused the Euro to fall down to support at around the 1.4250 level. Firstly, the rise of Finland's anti euro party, True Finns, may cause problems for the euro zone because they are against any and all bailouts. This is problematic because Finland's parliament has the right to vote on European Union requests for bailout funds, meaning it could hold up costly plans to shore up Portugal and bring stability to debt markets. Secondly, a Greek newspaper reported on Monday that the government had asked the International Monetary Fund and European Union to start discussions on a restructuring. A Greek finance ministry source said the report was not true. Support for the Euro held on comments by Austria's Ewald Nowotny who said that expectations that the key ECB rate will be increased by another 50 bps in 2011 were "well founded." Keep in mind that this week will be short due to the long Easter weekend, so a lack of liquidity can exacerbate currency moves. In Canada, the CAD started the week softer as risk aversion went into full swing after China's move and the worries over the sovereign debt fears in Europe. Also weighing on the CAD, the price of oil fell by over a dollar, which is a little odd since Saudi Arabia decide to cut output saying the market was well supplied.

Here are the interbank mid-market rates at the time of posting:

EUR/USD    1.4271            USD/CHF      0.8949

GBP/USD    1.6285            USD/CAD      0.9672

AUD/USD   1.0489            EUR/CAD      1.3799

NZD/USD    0.7858            GBP/CAD      1.5750       

USD/JPY      82.57             USD/MXN     11.8005