Yen resumes decline; Euro finds solace in Draghi

Global market moves resembled a moderate risk-on environment overnight, with the Euro recovering after a recent slump, while the U.S dollar slipped against major counterparts with exception of the Yen.

Although we've seen moderate weakness from the greenback overnight, we consider broader conditions favorable for further strength. Intermittent bouts of strength have been noted around solid economic feedback, which suggests a tentative return to traditional fundamentals where the dollar can rally on good news. For this we continue to look to the greenbacks relationship to the Fed's asset purchase program.

As noted in yesterday's report:

The greenback is in the unique position of attracting demand in two very different types of market environments. On one hand the U.S dollar retains its safe-haven attributes which can intermittently strengthen its appeal in times of adversity, while positive economic signposts have broadly worked in the dollars favour as markets attempt to define how long the fed will maintain extraordinary levels of economic stimulus. Should the data pulse continue to materially outpace expectations, we're likely to see intermittent bouts of greenback strength as markets continue to ponder when the Fed will begin scaling back on asset purchases.

In economic news overnight, the number of U.S citizens applying for unemployment benefits fell to a six-week low of 340,000 for the week ending March 2. This comes as data on Wednesday showed a pick-up in private sector hiring, with the ADP employment gauge showing 198,000 new jobs added in February, in excess of the 170,000 expected. January's growth originally reported at 192,000 was also revised to 215,000. The out-performance from the weekly jobless claims and ADP report are a particularly good precursor to Friday's official employment report.

As widely anticipated, the European Central Bank kept their main refinance rate on hold at 0.75 percent overnight. The Euro bounced following ECB President Mario Draghi's post decision address, who noted although the topic of interest rate cuts was on the agenda; the prevailing consensus was to remain on the sidelines. The Bank also expects a gradual recovery through the later part of 2013 with a balance of accommodative policy and improving global conditions expected to broadly benefit the Euro-region.

Across the Channel, the Bank of England also kept interest rates on hold at 0.50 percent with no change to the asset purchases program which is currently valued at GBP375 billion.

True to form, the most pronounced moves came from the Yen which fell across the board as investor's unwound long exposure after the recent corrective phase.  The greenback slumped against the Yen with the USD-JPY pair peaking above the 95 region for the first time since August of 2009. We also saw notable moves from the EUR-JPY cross which acted to provide some residual weakness for the Yen across the board.

The Aussie dollar crawled higher overnight coinciding with stronger equities from both sides of the Atlantic while residual support from the Euro kept the balance of risks to the upside. Yesterday's larger than expected trade deficit failed to spur any sustained selling on the Aussie with short-term losses quickly unwound in the hours to follow.

In the absence of any top-tier releases locally, markets will be focusing trade data from China on the docket at 1300 AEDT. Traders are bracing for a slump in both import and export activity with a trade deficit of $US6.95 billion expected in February, from a previous surplus of $US29.15 billion.

At the time of writing the Australian dollar is buying 102.7 US cents.