The absence of top-tier scheduled event risk left currency markets rudderless in the opening hours of the trading week, with most of the G10 FX majors languishing in familiar trading ranges against the US Dollar. The New Zealand dollar narrowly underperformed, sliding as much as 0.2 percent on average against its leading counterparts. The move tracked a decline in New Zealand’s benchmark 10-year bond yield, hinting the continued erosion of interest rate hike bets following last week’s RBNZ policy announcement was behind the selloff.
The docket remains quiet in the European session, with investors likely to look ahead toward US news-flow for direction cues. July’s preliminary Composite PMI figure and June’s Pending Home Sales report are due to cross the wires. The results may help to set the stage for an overstuffed week of high-profile US releases including the FOMC policy announcement, the second-quarter GDP reading and July’s Nonfarm Payrolls number.
The central object of speculation is the length of the time gap between October’s end of the Fed’s QE3 program and the beginning of outright interest rate hikes. With that in mind, upbeat US economic outcomes are likely to support the view that tightening will materialize relatively sooner versus later, pushing the greenback higher. Needless to say, soft outcomes are likely to yield opposite result. We remain long USD against the euro and have now bought the currency against its Canadian namesake.
