Forex Institutional Research: Credit Agricole (PA:CAGR) FX Daily
Key quotes from the Credit Agricole FX report:
The JPY remained under downward pressure in Asian hours on the back of newspaper reports quoting Abe adviser, Etsuro Honda, as advising recently that “now is the time to introduce helicopter money”. This report came on the back of “Helicopter” Ben Bernanke’s meeting with PM Abe yesterday. Later in the day, Chief Cabinet Secretary, Yoshihide Suga, strongly denied that the government was considering introducing helicopter money, which led to a weakening in JPY crosses.
The AUD was unaffected by weak consumer confidence data, which reflected the negative impacts of the Brexit vote and the uncertain election outcome. Fitch did not place Australia’s AAA credit rating on negative watch in its announcement today, which leaves only S&P with a negative outlook. So Australia is not likely to lose AAA in the near term – 2 out of 3 of the big-three rating agencies are required to assign a AAA rating to a country for it to be considered AAA. The Fitch announcement gave AUD a modest boost. The main event for the AUD remains tomorrow’s labour market report. For several months, Australian jobs growth has been skewed to part-time work. But hours worked have been rising and pointing to pent up labour demand. These outcomes have been consistent with firm job ads growth. It will be interesting to see if this pent up demand can begin to convert into stronger total jobs growth.
NZD was weighed a little by RBNZ Deputy Governor, John McDermott’s, speech on the rate-decision process. He said “…the persistent period of weaker-thanexpected inflation remains a focus for the Bank (RBNZ)….” Taken out of context this looks like dovish statement, but within context it is relatively neutral as it refers to the need for the RBNZ to understand the drivers of low inflation. Indeed, McDermott opened his speech saying that he does not want to give any guidance on the future direction of monetary policy. So we do not think that McDermott’s speech today contradicts Deputy Governor, Grant Spencer’s, speech last week, in which the latter suggested that the RBNZ is a reluctant rate cutter due to concerns about a housing-market bubble. We think that the outcome of the 11 August RBNZ meeting will be decided by two data points – Q2 inflation data released on 18 July and inflation expectations data released 02 August.
Ahead today the main focus will be on the Bank of Canada monetary policy announcement. We see today’s Bank of Canada rate decision as a potential bearish catalyst for the CAD. The BoC has defied dovish expectations so far in 2016, relying on fiscal expansion to support the economy. However, non-energy exports have fallen short of the BoC’s hopes, business confidence remains subdued and Brexit constitutes a negative external shock via its impact on the financial markets and the global growth outlook. Although we do not expect the BoC to rush into a rate cut, there is scope to shift to a more dovish language in the statement. CAD’s problems extend well beyond the potential BoC’s dovishness however. The oil price rally was already running out of steam before Brexit as the market remains in oversupply and the subsequent downgrade in the global growth outlook should put further downward pressure on crude prices. Meanwhile, the financing of Canada’s current account deficit could also become more problematic amid more subdued global growth sentiment. We remain bullish on USD/CAD.