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Federal Reserve Beige Book today and a review of the Volcker rule

By OFX

This morning the US received it GDP readings on the first-quarter GDP expected was for 2.4%, and the prelim decreased to 1.9%. Wholesale figures for April released simultaneously printing flat at 0.0% and a decrease from previous 0.4%.

The Fed Beige Book is published at 2:00 pm. There are reports that an “open board meeting” will be held at 3:00 pm by the Federal Reserve on the Volcker rule. The Volcker rule is a rule within the Dodd-Frank Wall Street Reform and Consumer Protection Act, and it restricts US bank from making different kinds of speculative investments that do not protect the banks' customers.

The Bank of Canada interest rate announcement is out at 10 am this morning, expectations from market participants it the BOC will leave the lending rate at 1.25%. The Canadian has reversed on heavy selling pressure after global oil prices fell after hitting 2018 highs. The loonie sits at 77 cents US to start the day.

NAFTA negotiations are still ongoing, and the Canadian Prime Minister Justin Trudeau has chimed in stating that a win-win deal is still possible, but that Canada will not be pressured on hardline tactics and he would rather see the agreement end than accept specific demands. Statistics Canada released the 1st quarter GDP figures tomorrow and forecast are for a slightly better reading from the previous quarter, expectations are for a print of 2% from the prior of 1.7%. The Canadian central bank has stated the GDP is a significant metric that is used in the predictions on the future direction for inflation. The Bank of Canada has an inflationary target from one to two percent

All eyes remain on Italy with concerns remaining over the fractious political situation and what future elections could mean for the Eurozone’s 3rd largest economy. There has been a slight recovery in Italian bonds, the Milan stock exchange, and the euro this morning as some of the panic lifts from financial markets. The leading European bourses are slightly in the green as we start the day too, however, a lot of confidence the single currency had attracted from investors over the past year has no doubt evaporated since the weekend..

Data-wise we have had positive German Retail Sales and a higher than expected Spanish CPI print to add some support to the single currency. Later today we have German CPI numbers which are predicted to show a healthy 0.3% monthly uptick. GBP/EUR is heading lower and currently sits around 1.1445 while the EURUSD moves higher.

Sterling reacted to external influences yesterday as there was little new Brexit news or domestic data to move the pound. It pushed higher against the euro as the single currency was dumped across the board on the collapse in Italian coalition talks, however, dropped against the dollar as the greenback was one of the primary beneficiaries from the European political drama. It’s another quiet day today with little UK data due so expect Brexit news, events from Italy and the second estimate of US Q1 GDP to be the primary drivers for sterling crosses.

GBP/USD is back above 1.3250 as some of the fear re Italy abates, however, we are still in risk-off mode with the Nikkei 225 Index in Japan closing 1.52% lower and the yen remaining well bid.

The Australian dollar fell through trade on Tuesday as risk-off sentiment drove investors out of commodity-based and emerging market units. Investors sought safety in haven assets as political turmoil in Europe sent jitters through the broader market and forced the AUD to intraday lows at 0.7499, its lowest mark in over a week.

Having followed treasury yields and equities lower the AUD did well to hold onto supports at 0.75. The increased likelihood of fresh Italian elections and the growing support within Spain for the left-wing opposition sent the Euro sharply lower and landed a massive blow to broader risk sentiments forcing the AUD to shorten against the traditional haven drawcards, the USD, JPY, and CHF. While well supported on approaches toward 0.7450 more widespread risk sentiment will continue to govern direction through the short term.

Today, attentions turn to a mostly full macroeconomic calendar. Domestic building approval controls the local docket awhile all-important Q1 GDP data and preliminary labor market data headline the US calendar and will provide potential catalysts steering direction within the current ranges.

The New Zealand dollar swung lower in overnight trading as a general risk-off tone was observed in offshore markets. With geopolitical risks in Europe at present, large movements were seen back into safe-haven plays and subsequently the Kiwi was sold off against the US Dollar and Japanese Yen. Opening at 0.6940 and with no domestic economic data released yesterday, we saw the significant movements at the opening of the European session falling back to the US 69 cent handle and eventual lows of 0.6890.

The RBNZ Financial Stability report was released this morning whereby it was stated that the financial system is “sound and efficient” with no change materially in the past six months. There was no impact the Kiwi following the release as investors look to RBNZ Governor Orrs speech this afternoon for further influence on movements for the local currency. The New Zealand Dollar opens this morning at 0.6965.