Originally updated: 08:00
Trading Bias: Neutral
Currency pair: –
There is currently no fresh sentiment to warrant an entry. Thus, we will be awaiting news-flow to provide opportunities to get into the market.
In early Asian trade RBA Deputy Governor Lowe said that there’s scope to lower rates further. Although this was not intended to be forward guidance, it did put slight downward pressure on AUD with Aussie drifting over 40 pips lower from session highs.
NZD remained pressured since the government cited plans to increase the types of residential properties liable for capital gains tax. Some forms of macro-prudential controls can be viewed as laying the foundation for a rate cut within the landscape of a hot property market.
On Friday we witnessed US Preliminary University of Michigan Consumer Sentiment which missed estimates (88.6 vs 95.9 exp). This caused another dollar sell-off with EURUSD rallying over 100 pips in the following hours. The pair is at the highest level in three months.
The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. The currency is verging on neutral in the short term and is extremely sensitive to negative data. Last week marked another week of poor data, with the dollar index finishing lower for the fifth consecutive week.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. The EURUSD can easily get a boost on any USD weakness, and given the huge short positioning in the pair, any liquidation of these positions can cause an aggressive rally. If Greece fails to make any of their imminent repayments, the euro will be pressured.
GBP has regained its place as one of the strongest (less weak) currencies however the Quarterly Inflation Report last week dampened expectations of a rate hike as growth forecasts were downgraded.
AUD is relatively neutral now there is no speculation of rate cuts in the near term. As such it will take most of its direction from the price of iron ore and economic activity in China. Movements in AUDUSD will largely be a function of USD sentiment. AUD enjoys a positive interest differential against all majors except NZD; fundamentally this is bullish for the currency.
NZD has a chance of decreasing interest rates in coming months. The Overnight Index Swap market is pricing a 46% chance of a June 10 cut. National Australia Bank says this is too soon.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil.
JPY remains weak due to QE but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.
We will monitor the news wires and key technical levels for any high probability trading opportunities.
Other Market Moving News:
Today’s calendar is very light with no major risk events until tomorrow’s RBA Monetary Policy Meeting Minutes.