Current Market Sentiment
Yesterday’s London session showed two MPC members’ decision to call for a rate hike was finely balanced. Sterling remains elevated against all its peers. GBPAUD had a 340 pip rally and GBPNZD had 400 pip rally in a 24-hour period from Tuesday to Wednesday.
On the back of the bullish GBP information we placed a trade call yesterday to buy GBPJPY at 187.50 with a target of 189. The pair is currently 75 pips in profit with stop at breakeven.
Canadian Wholesale Sales came in very close to estimates and there was negligible reaction in the currency.
Yesterday the dollar index tracked generally sideways. It lost against pound but gained against all three major Asian currencies, in the lead up to the FOMC Meeting Minutes. The minutes were an anti-climax and no new pertinent information was revealed. There was almost no change in the implied probabilities derived from the Fed Funds Futures market. Fed members saw a June hike as improbable but did not specifically rule out the option. Generally they were upbeat about the economy’s prospects, as was conveyed in the official statement. There has been a run of poor data since this meeting so their opinions could be viewed as slightly outdated. No clear direction was given to the greenback.
In Asian trade today, Chinese HSBC Manufacturing PMI came in marginally lower than expected, showing the third consecutive month of contraction. Aussie was unmoved and is now higher on the day.
New Zealand released their Annual Budget which held a generally positive outlook for the economy and forecast a budget surplus for 2015–2016. Further, the budget saw 2% inflation in Q4 2016 which is higher than the two-year inflation expectations of 1.85% which were released on Tuesday. Hence Kiwi is up nearly 40 pips off its session lows.