Home Daily Commentaries FOMC Minutes are the focus of the market today

FOMC Minutes are the focus of the market today

Daily Currency Update

Global equity markets have fallen overnight, and US indices are pointing well to the negative side, reasoning for the pullback is geopolitical concerns and some disappointing data from Europe. Adverse market conditions are elevating the greenback against its G10 trading peers. The euro and the US dollar traded below the 1.17 handle earlier today the dollar/CAD moves back above 1.29.

At the start of the month the Federal Open Market Committee of the Federal Reserve meeting, and today at 2 pm we will see the minutes of this meeting. Market participants are interested in any signs of division between members and where they stand on the issue of further hikes as inflation is climbing. The market will look for hints on if the Fed is okay to overshoot the 2% inflation target and raise rates only three times this year as a whole or move forward with the original outlook of four hikes anticipated earlier in the year.

On the economic data front today we will have US Manufacturing PMI AT 9:45 am, and New Home Sales at 10 am followed up by Crude Oil Inventories at 10:30 am. West Texas Intermediate trades 0.61% lower today at $71.76 a barrel at writing.

Key Movers

The loonie was the worst performer from the G-10 group in yesterday’s session and overnight. Loosing around 0.2% versus the USD after negative headlines started to hit the wires with Trump hinting that the North Korea summit might not happen on June 12, bring the geopolitical risk trade back in boosting the greenback.

OPEC is saying they are considering an output increase due to concerns about Venezuela and Iran potential slower supply. Comments lowered the price of oil ensuing further downward pressure on the loonie.

The Euro was gaining 0.3% versus the USD on Yesterday’s session but couldn’t hold on to the wins after it was reported that Italy’s new populist Government is considering Paolo Savona as the leading candidate for the Finance Ministry, he is an economist who is in favor of exiting the Euro.

EUR/USD seems to be going one way this morning. European PMI released this morning were – in the main – a lot weaker than market forecasts, and EUR/USD looks set to break below 1.17. The stronger dollar is also playing a part, of course. EUR/GBP has dipped lower on the PMI headlines, and this data could well continue to undermine the pair.

Focus this morning was on UK inflation data which missed expectations and with cable teetering, an August rate hike priced at 50:50 and few clues given away at yesterday’s hearings, it makes this data release even more critical than usual. Given the slide we’ve seen in GBP/USD over the last few weeks, there’s an argument to say the risk is to the upside, but there’s still plenty of room for a further sell-off in GBP/USD as we stand.

In another news yesterday the UK Inflation Report Hearings came and went. We heard nothing much new, and it was a bit of a snooze fest if honest. Carney reiterated how the central bank would be monitoring data closely but failed to signal any likelihood of a rate hike in August, and although it shouldn’t have come as too much of a surprise, cable was sold. Later in the day US economic data printed better than expected and the GBP/USD sell-off was reaffirmed.

The Australian Dollar maintained a relatively tight trading range throughout Tuesday having failed to break through resistance at 0.7590/0.76. Despite touching monthly highs at 0.7605 the Aussie was unable to capitalize on its newfound upward momentum, and broader USD weakness as investors sold into rallies and the fought back forays attempting to drive the currency higher.

While the sell-off against the Greenback has seemingly stalled fair value appears to be range bound between supports at 0.7450 and the current resistance handle of 0.7590/0.76. However, the short-term upside is not out of the questions as investors look to square USD positions and with FOMC rate hikes largely priced in now the interest rate narrative that has propped up the worlds base currency is running out of steam. That said, the overwhelming USD yield differential should continue to cap gains and weigh heavily on any attempt to push back toward 0.77 through the medium term.

Attentions now turn to Domestic Q1 construction as a possible marker for next week’s GDP print while Governor Lowe speaks at the Australia-China Relations Institute and the FOMC releases the minutes from its meeting earlier this month. A hawkish bias could bolster calls for a 3rd rate hike into the end of the year and act as a catalyst to inspire further USD upside while a bearish undertone will likely help support AUD attempts on 0.76.

Opening at 0.6950 yesterday morning, the New Zealand dollar remained range bound for much of the day within a twenty-point range. The Kiwi hit an overnight high of 0.6975 against the US Dollar at the start of the European session. Hopes of climbing back within reach of the 70 US cent handle was dashed as we saw a steady decline in early morning trade to lows of 0.6920.

The Kiwi has also been in a steady decline against the Aussie, topping out overnight at 0.9140 and could test February lows this week with RBA Governor Lowe due to speak at the Australia-China Relations Institute this evening.

With little on the domestic front again today, further movements will be dependent on the release of FOMC meeting minutes before the release of NZ Trade balance figures tomorrow morning.

Expected Ranges

  • USD/CAD: 1.2850 - 1.2945 ▲
  • EUR/USD: 1.1650 - 1.1750 ▼
  • GBP/USD: 1.3306 - 1.3443 ▼
  • AUD/USD: 0.7523 - 0.7583 ▲
  • NZD/USD: 0.6888 - 0.6945 ▲