Overview
Antipodean currencies started off the week on the back foot, despite the PBoC rate cut over the weekend. AUD/USD initially opened the week 40 pips higher as a result of the aforementioned cut, however throughout the Asian and European session AUD/USD pared these gains to reside in negative territory. This comes as a result of PBoC gains being capped due to some participants voicing concerns over Chinese growth prospects, while participants also look ahead to tomorrow’s RBA rate decision with uncertainty, dragging AUD lower, with NZD falling in sympathy. Market participants appear unsure as to the result of tomorrow’s rate decision with 18 surveyed analysts going for a rate cut and 11 anticipating the central bank holding their rate, while RBA watcher Terry McCrann (who predicted last month’s cut) suggesting rates will remain unchanged.
Elsewhere, USD started this week on the front foot initially, gaining from AUD weakness, subsequently seeing USD/JPY surge to a 2-week high to trade just 4 pips shy of the 120.00 handle, with further moves higher capped by a large vanilla option expiry (1.7bln) at the handle. In early European trade, the USD-index came off its best levels to drift lower amid no new fundamental news, leading EUR to outperform, with short covering in the EUR/GBP cross helping to lift EUR/USD as well as eurozone CPI which was not as bad as some had feared, while EUR/CHF also gained alongside the EUR strength, with RANsquawk sources reporting leveraged names on the offer in CHF. However, at the 10am NY cut, USD/JPY broke above the 120.00 handle, leaving the greenback to pare much the day’s losses, subsequently weighing on EUR/USD and GBP/USD, after both pairs had previously seen strength.
Looking ahead, as well as the RBA rate decision, tomorrow also sees the GDP annualised reading from Canada as well as comments from BoE’s Carney (Neutral), with many of the MPC members taking a hawkish tone in recent weeks, while the US sees comments from Fed’s Mester (Non-Voter, Soft Hawk) and Yellen (Voter, Dove).