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Overnight trading during the Asian session  on Sunday  night started out with a bang, as the Kiwi was roiled and gapped down over 100pts against the USD on news that dairy-export giant Fonterra had found bacteria that could cause botulism in some of its dairy products.   New Zealand’s largest dairy exporter announced that three batches of its whey protein were contaminated with botulism-causing bacteria, which has prompted China and Russia to both halt imports of NZ milk powders for the time being.   Although whey protein is only a small portion of NZ’s dairy exports, milk powders accounted for 15% of NZ’s total exports in 2012, which could have a significant impact on GDP for the country should Fonterra not be able to quickly calm market nerves and take the needed steps to assure future quality issues.

The Kiwi has managed to stabilize after its initial drubbing as investors continue to assess the fall-out, although the NZDUSD pair remains anchored to the mid-0.77 region where strong support is found.   The Aussie has also eased back south of the 0.8900 handle against the USD after heavy short-covering in the AUD/NZD pair helped prop the antipodean currency against the big dollar earlier in the session.

Not doing the Aussie any favours ahead of the Reserve Bank of Australia rate decision tonight, retail sales remained flat over the month of June, worse than the median analyst forecast of 0.4% and lower than the 0.2% clip registered in May.   AUDUSD is trading slightly heavier than last week’s close, with the pair pivoting just south of the 0.8900 level.

A quick data check of equities in the Asian region saw the Nikkei shed 1.44% during its session, while a decent non-manufacturing PMI for China helped the Shanghai Composite stay afloat and add 0.14%.   The non-manufacturing PMI survey out of China came in with a print of 54.1, moderately ahead of market consensus of 53.9, but increases the chances of stabilization in the world’s second largest economy.

Heading over to Europe, major bourses are mixed as we move into the North American cross.   The Dax and FTSE are marginally lower by 0.02% and 0.15% respectively, while the broad Stoxx index has managed to hold its head above water and is up 0.04% at the time of writing.   A pleasant surprise for the UK this morning has the pound on stronger footing against the USD, as its service-PMI report showed that Britain’s recovery is gaining traction by posting its best monthly performance since the financial crisis.   The PMI survey registered a 60.2, up from June’s 56.9 and better than the median analyst estimate of 57.2.   The better than expected data from the service sector follows on the heels of brighter Q3 data from manufacturing and construction as well, and although it probably doesn’t sway Carney from introducing some sort of forward guidance this week, it does increase the chances the BoE stands pat on the current level of its asset purchase program.   The pound propelled itself into the high-1.53s against the USD, however some of the initial move has been retraced as the GBPUSD eases back into the mid-1.53s prior to the opening bell in North America.

As we get set for the start of the trading week in North America, equity futures are displaying a slight weight to the tape, while the DXY is pivoting close to unchanged after bouncing off trend-line congestion in the high-81s.   Hydrocarbons are well offered this morning with both Brent and WTI each falling close to 1%, as front-month WTI garners offers south of $106/barrel.   The Loonie is slightly under pressure ahead of the opening bell, but outperforming on the crosses despite the soft performance in equities and commodities.   Rumors of a large option expiry at the NY cut in the 1.0395 region have helped anchor USDCAD just south of 1.0400 for the time being, however top-side resistance through this level comes in at the 1.0430 region.

The North American economic calendar is fairly quiet for the remainder of the session, with the only major release the ISM Non-Manufacturing PMI survey for the American economy.   The print is due to hit the wires at  10:00am EST  and analysts are expecting a slight uptick from the previous reading of 52.2.

On the docket for the upcoming overnight session, the RBA is due to release what it judges as the appropriate level for overnight lending rates in the region.   Recent dovish comments from Governor Stevens and sluggish inflation data have markets pricing in a further rate cut on the horizon, with overnight index swaps suggesting a 99.67% probability that the RBA will slash the benchmark rate by another 25pts to 2.50%.   Data released from the CFTC last week showed that speculative traders were unwilling to build any meaningful long positions ahead of the rate decision and the expectations for further easing; AUD shorts hit a new record coming in at $7.3bn according to the COT report.