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US Durable Goods miss as expected and Central Bankers are speaking

By OFX

US Durable Goods were released this morning with expectations for a lower reading of the previous 2.6% Goods data headlined at -1.7%, so the consensus was correct. We also have UofM consumers sentiment figures released at 10 am the forecast is at 99 slightly above the previous reading of 98.8.

The dollar dropped on Thursday after U.S president Trump called off the historic June 12 summit in Singapore with North Korean leader Kim Jong Un, the meeting would have been its first face-to-face between the two. In Trumps letter addressed to “His Excellency” he wrote “Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting”. Adding “Your talk of nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used”. The meeting cancellation grabbed the headlines but the China trade war is also getting some attention; the “risk off” nature of trading was further compounded yesterday morning as President Trump announced he was opening an investigation on U.S. auto tariffs.

Central Bankers are at the forefront today with the ECB’s Benoit Coeure speaking, BoE Governor Mark Carney, FOMC member Powell, Fed President Evans, and finally, FOMC members Raphael Bostic and Robert Kaplan rounding off the speeches. So with so many central bank talking heads, there could be market reaction on currency pairs.

Crude oil prices fell after reports the Saudi Arabia and Russia discussed adding 1 million barrels a day to global production. The reasons are over the last 17 months OPEC and its oil alliance have succeeded in curbing the oil glut, and oil prices are expected to rise. OPEC and other nations are to meet in Vienna on June 22nd to discuss next steps. The Canadian dollar is feeling the effect of dropping crude prices and is down half a cent from yesterday close against the greenback.

NAFTA talks heat up after Mexico says it is not going to be pressured on negotiations after the US launched an investigation in auto tariffs. A spokesperson for the Mexican President was quoted saying,” If an agreement is to be reached, it will be one that truly benefits Mexico. If these conditions do not exist, Mexico will not move forward." Is this the proverbial line in the sand, USDMXN trades at 19.62 up 0.20%?

Fundamentals are non-existent for Canada and the loonie today, so market participants tap the fingers waiting for the BOC and Canadian GDP next Wednesday and Thursday respectively.

EUR/USD rallied on the US/North Korean news yesterday, but it didn’t last long. The pair has now broken down through the prominent 1.17 figure as dollar bids gather pace and key support levels at 1.1712-15 are broken.

Yesterday’s move was just the second daily gain in the last two weeks for the EURUSD, and the move was probably more related to broader USD weakness than any positive headlines from the Eurozone. G10 currencies recovered a bit versus the USD on yesterday’s session after trade concerns, again, and Trump is canceling the summit with North Korea dominated headlines, providing support to haven currencies like JPY and CHF.

GBP/USD is on the back foot again this morning. After recovering back through the 1.34 figure yesterday, it was unable to hold on to the level and has since fallen back in overnight markets. The pair’s mild recovery came on the back of news that Donald Trump had canceled his meeting with North Korea’s Kim Jung Un, news of which was initially dollar negative. The pound also got a boost early on in the day on Thursday following the release of better than expected retail sales data; the headline number was strong a 1.6% m/m vs. expectations for a reading of 0.8%. The last set of retail sales data was also revised up.

It was a surprise in a way that the pound didn’t push on further, but some political concerns and the prospects of Brexit are keeping the bids at bay. BoE Governor Carney was speaking last night and said about Brexit that “a more disorderly transition, or a materially different end state from our assumption, would have implications for monetary policy.” In context, his speech wasn’t as cynical as this quote suggests but it hasn’t done the pound too many favors this morning.

Investors and traders now await the release of UK Second Estimate GDP. Mark Carney is due to speak again this morning.

The Australian Dollar crawled higher through trade on Thursday recouping losses suffered in the wake of Wednesday’s softer than anticipated construction output report. The AUD held firm in the face of a risk-driven sell-off prompted by the cancellation of the June 12 Trump-Kim summit and refused to follow equities lower at the beginning of New York trade. The Aussie edged toward intraday highs at 0.7582 but failed to break higher despite a correction in U.S Treasury yields.

Having touched two years and ten years highs and two year US treasury notes have tempered somewhat throughout the last few days pulling back below the 3%, and 2.55% handles respectively. The correction in yields when coupled with improvements in base metal prices have propped up the Australian dollar and ensured short-term support holds on moves approaching 0.7530 and 0.7450.

With the domestic docket proffering little of note attentions now turn to US consumer sentiment and inflation expectations and commentary from Fed Chair Jerome Powell for direction into the weekly close. Softness and a bearish undertone may force a correction in Fed futures and acts as a catalyst to drive the AUD through resistance, but for now, top end ranges at 0.7590/0.76 appear well constrained.

The New Zealand dollar opened yesterday at 0.6925 ahead of NZ trade balance figures in the early morning. A growing Trade balance surplus of NZ $263M for the month of April which was boosted by an increase in Kiwifruit exports by 82% a substantial numbers across a majority of sectors. Despite seeing an intraday high of 0.6936, it was a relatively mundane day for currency markets as we saw limited movements in overnight markets and lows of 0.6907.

With early morning rumbles of the cancellation of the eagerly awaited summit between the US and North Korea, Geopolitical risk comes to the forefront of investors’ minds and the US was sold off in late North American trade. With little on the domestic docket today, the Kiwi could close above US 69 cents to end the week as we open this morning at 0.6916.