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FOMC Minutes followed up by Fed speaker’s todays

By OFX

It’s a somewhat similar story for the dollar this morning – it remains generally strong despite a post-Fed minutes wobble. The minutes, released overnight, revealed the Fed seem optimistic about the economy with the labor market continuing to strengthen and economic activity rising at a moderate rate. FOMC officials said that the economic outlook warranted another interest-rate hike “soon” with markets already pricing in a 90% rate hike in June.

Market participants a calling President Donald Trump’s push for new tariffs on car and truck imports a mere tactic to prod Canada and Mexico into accepting an overhaul of NAFTA. The additional duties of up to 25% are under consideration by the White House administration and would exacerbate relations with the United States closest international allies including South Korea and Japan.

Today’s weekly Initial Jobless Claims came in at 234k above the expectations of 220K the 8:30 am release had little effect on the USD against its peers. We have Existing Home Sale figures for the month of April released at 10 am. Market participants will be interested in comments on yesterday’s FOMC minutes from Philadelphia Fed President Harker and Atlanta Fed President Bostic at a conference in Dallas today.

With no economic data today or tomorrow from Canada, the loonie will be trading on the ebb and flow of the market. Oil continues to settle in at a lower price and currently sits at 71.00 dollars per barrel while gold makes modest gains and presently at writing trades at 1295.90.

Market Participants are in limbo on the Canadian dollar direction heading into next week’s BOC Interest Rate Announcement on May 30th followed by the 1st quarter GDP figures on Thursday, May 31st. The central bank has flagged the GDP numbers as the growth metric it watches to curb inflationary pressures by raising interest rates. The Bank of Canada's overnight rate is expected to remain at 1.25% after the announcement next week.

The Euro made fresh six month lows through trade on Wednesday as data showed the Euro area continues to suffer softness across broader macroeconomic indicators. Manufacturing and service sector business conditions, in particular, softened through the month to date, compounding slowdowns across other vital economic markers and exacerbating expectations that monetary policy will remain accommodative well into 2019.

The Euro broke below the 1.17 handle to touch 1.1679 as the ongoing uncertainties that surround the Italian election and collation formation continue to weigh on the currency too. Concerns the new government will push for ECB debt forgiveness, as well as some proposed fiscal policies, will put pressure on an already stretched fiscal deficit.

ECB monetary policy meeting minutes are released later today and will be the primary focus for euro traders. You can only think the central bank will be dovish, so anything less dovish than expected could well be supportive of the single currency, especially in light of its recent and aggressive sell-off.

The pound continued its downward trajectory yesterday, hitting a fresh 2018 low. CPI (inflation) data released on Wednesday morning was the initial catalyst, coming in slightly below expectations at 2.4% for the year. This reading – the lowest in more than a year - only serves to extend doubts that the Bank of England will hike interest rates in August.

The Pound found little support from the news headlines yesterday too, with reports that Theresa May’s government has yet to decide on the post-EU customs options it wants. Both Boris Johnston and Jacob Rees-Mogg have been vocal in their wish to leave the customs union quickly and for May to show more “backbone.” Again, Brexit continues to weigh on sterling and the incumbent government.

Focus this morning turns to UK Retail Sales - we’ll need to see a convincing beat for GBP/USD to bounce back. BoE Governor Carney is speaking at two events today too, and traders will be listening carefully for any hints towards an August rate hike. In the meantime, the pound has been a bit better bid this morning on the back of a Times article stating that the PM will ask the EU for a new Brexit transition period until 2023. Markets seem to like the idea of delaying this thing.

The Australian Dollar closed yesterday marginally lower following a largely risk adverse trading session and a softening in domestic construction conditions. Having opened near one-month highs at 0.7580 the AUD tumbled mid-morning following a dour report on construction work completed throughout the first quarter. Seen as a precursor to GDP data the soft print does little to expel fears the Australian economy is still running below capacity and only reinforces expectations monetary policy will remain accommodative through the short-medium term.

Having touched intraday lows at 0.7523, the AUD found support as investors were reluctant to extend losses ahead of the FOMC meeting minutes. While the minutes were mostly on point and a June rate hike is firmly on the table, the Aussie found short-term support in the critical commentary that suggests two rate hikes in the second half of the year are unlikely and that a gradual rate of adjustment is appropriate. The FOMC made clear there was no urgency to hike more aggressively and that inflation moves moderately beyond the 2% target would be tolerated. Edging back through 0.7550 the AUD opens this morning buying 0.7565 U.S cents.

With little macroeconomic data on hand domestically attentions now turn to FOMC speakers and Friday’s core durable goods order report Friday for direction into the weekly close.

The New Zealand Dollar opened yesterday morning at 0.6935 against the US Dollar with the expectation of a quiet day on the markets. This was not the case as the RBNZ published a research paper on hypotheticals around unconventional monetary policy should they need to be used in the future. NZ trade balance figures are released this morning and are looking to recover from a shock trade deficit last month of negative $86 million after a significant rise in imported fuel costs for the month.

Despite RBNZ Assistant Governor John McDermott calming markets in an interview with Bloomberg by saying that there is “no imminent prospect” there still a higher chance than previous that they could use negative cash rates if need be. The Kiwi was sold off in droves following the news and shed nearly half a cent back below 69 US Cents following the interview and once again tested two-year lows as the NSD/USD cross remains vulnerable. Eventual intraday lows hit 0.6886 before recovering and looks to pair losses this morning with an open at 0.6925.

NZ trade balance figures are released this morning and are looking to recover from a shock trade deficit last month of negative $86 million after a significant rise in imported fuel costs for the month.