WEEKLY FX WRAP: CAD outperforms as BoC look set for a rate hike next week
CAD began the new month on the front foot, with the currency this week’s outperformer as markets brace themselves for a potential rate rise from the BoC next week. As such, this saw USD/CAD fall to an 8-month low after making a firm break below 1.30, while 1.29 had also been breached post better than expected Canadian jobs report. OIS markets are now pricing in around 93% chance of a 25bps hike.
GBP: Another central bank attempting to gear up the markets of a potential rate rise has been the BoE with the likes of McCafferty highlighting that the banks tolerance over rising inflation (2.9%) has been wearing thin. However, this failed to prop up the confidence amid the backdrop of poor UK data, with PMI surveys alongside Mfg. and Industrial production figures falling short of analyst expectations. Subsequently, the move above 1.30 at the back-end of last week failed to hold with GBP/USD back through 1.29.
AUD took a hit as the RBA broke the trend central banks turning hawkish, with the AUD/USD pair trading circa 0.7600. The Reserve Bank flagged issues around employment growth (suggesting that indicators remained mixed), slow wage growth (which remains low, and the RBA believe that it is likely to stay that way for a while) and housing debt 'outpacing' incomes. The central bank also reiterated that a rising AUD would complicate any economic adjustment. The RBA’s statement wasn’t all negative, and the central bank was relatively upbeat on business conditions, it highlighted that domestic growth is expected to slowly strengthen, while suggesting that the global economy is picking up.
EUR continued to hover around 1yr highs, a mid-week dip to the mid 1.13s after ECB Coeure noted that the central bank had not discussed changing policy. However, this was somewhat similar to what Draghi had previously stated with the price action ultimately was pared following a technical break above 0.5% in the German 10Y. Additionally, the ECB minutes failed to provide any pertinent information, with Europe looking to be a quiet from a data perspective next week.
JPY made a push to 114 against the greenback largely owing to the BoJ’s utilisation of YCC by announcing that they were to purchase unlimited amount of 10Y JGB’s at a yield of 0.110%. USD/JPY pushed through July’s highs, now looking toward the key triple top (May 8, 9 and 10) at 114.31. A break through this could firmly indicate that bulls have once again gained control of the pair.
USD: A fairly muted start to the week for the greenback amid the Independence day holiday, while all eyes had been fixed on the NFP report, which was ultimately mixed and as such the USD saw mild support to consolidate above 96.00. Much of the focus for participants will be next week where we have Fed Chair Yellen on the schedule, alongside a host of other Fed speakers, while next Friday will see a slew of data from the US, including CPI and U. of Michigan prelims.