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USD Recovers from yesterday’s Losses

By OFX

The Greenback is making a slight recovery this morning versus its G-10 peers. No major event risk out of the US today, but JOLTS Job Openings in May is expected to print at 6660 and will be released at 10:00 EST. More fundamentals will come tomorrow as we have PPI, Wholesale data and Fed Williams speaking all on deck.

Loonie is soft today heading into tomorrow’s BoC rate decision. Housing Start in June and Building Permits in May are due for release just shortly after 8:00am EST and are expected to print at 210K and -0.5% respectively. Canadian stocks were on the rise yesterday and Crude Oil is also continuing to creep up. All eyes will be on tomorrow’s BoC rate decision as the market has currently priced in an 85% chance of a 25 bps rate hike.

Mario Draghi gave an upbeat testimony on the state of Eurozone economic health yesterday in Brussels stating that inflation was on a self-sustaining path and that the bank’s QE programme would add around 1.9% to GDP between 2016 and 2020. Despite this upbeat assessment the EUR is still soft probably due to the weak German ZEW Survey data in July as both Current Situation and Expectations data disappointed. Draghi is due to speak again tomorrow before Thursdays ECB meeting minutes which may cast some light on when the bank is likely to hike rates.

It was a tumultuous day in UK politics yesterday as two key members of Prime Minister Theresa May's cabinet resigned over the government's intended Brexit strategy. First to go was Brexit Secretary, David Davis, who’s exit was announced on Sunday night. Davis’ letter of resignation highlighted that “the general direction of policy will leave us in at best a weak negotiating position and possibly an inescapable one.” Comments from Davis after his departure were conciliatory in tone about Theresa May confirming that he would not be looking to make a leadership challenge and that she was a good PM. Replacing Davis will be Dominic Raab who has been promoted from housing minister. Next to go and the one that really rattled the Pound was the departure of Foreign Secretary, Boris Johnson. Rumours started to circulate at lunchtime that he may be leaving and several hours later it was confirmed he had quit. The GBP initially took a massive hit as markets weighed up the chances he would make a bid for power throwing the Tory party into turmoil. It has since recovered as it appears Theresa May has seen off a leadership challenge for now, however her position is more precarious than ever (and that’s saying something). Johnsons resignation letter, stated that the “Brexit dream is dying, suffocated by needless self-doubt.” In a barbed response by May of Johnsons resignation, she said, “I am sorry - and a little surprised - to receive it after the productive discussions we had at Chequers on Friday.” Health Secretary, Jeremy Hunt has been drafted in as replacement for Johnson as Foreign Secretary.

Politics is likely to dominate news for the time being however there is some data out today from the UK. Visible Trade Balance in May printed better than expected at -GBP 2790, as did Construction Output in May. Manufacturing and Industrial Production in May all disappointed falling short of expectations.

Overnight saw the release of the latest National Australia Bank Monthly Business Survey with its Business Confidence reading coming out at 6 down from an upwardly revised 7 seen for May. Alan Oster, NAB Group Chief Economist commented “The survey continues to suggest relatively robust growth in the economy but also suggests that broader inflationary pressures remain weak with slow rates of both purchase price and final products price inflation. Labour cost growth remains weak, though there is some evidence of a pickup in specific industries.” This subdued inflation is consistent with market expectations that we will be waiting until 2019 for any hike in rates from the Reserve Bank of Australia.

The Kiwi has mirrored the Aussies slight fall against the greenback. The only data of note from NZ is Thursday night’s Business NZ Manufacturing Index which last time posted at 54.5. Expect any new rumblings from Trump re: trade to be the main drivers for the local dollar before then.