The Forex Week In Review
A quiet week comes to an end for Forex markets with little in the way of much important action to note. Data this week was restricted mainly to the second tier with US Durable Goods, GDP and PCE the key data arriving later in the week.
Action over much of the week was driven by a continuation in bullish sentiments expressed by various Fed members with Fed’s Kaplan joining the ranks of other officials who have recently stated that they see a minimum of two rate hikes this year with the first to come in the coming meetings.
Continued upside in Oil this week drove risk assets higher over the week with equity markets gains weighing on JPY safe-haven demand to lead the currency lower over the week. Oil prices remain supported by the ongoing production outages that are affecting various global sites with the latest US crude Oil inventory data showing that inventories had in-fact fallen after reaching record levels earlier in the year.
USD – Weak US PMI data sets stalled the USD’s bullish advance midweek with the service sector reading falling back to 51.2 in May and manufacturing equally disappointing. Despite these soft reading, further Fed officials expressed support for the Fed’s proposed rate path of two hikes this year with market expectations now building ahead of the June FOMC meeting. GDP growth was revised higher for the 1q from 0.5% to 0.8% adding further support for the Dollar.
EUR – ECB policymakers are echoing for governments to coordinate their economic strategies to shore up the region’s recovery prospects. French central bank chief Francois Villeroy commented that “monetary policy cannot be a substitute for economic policy coordination or the lack of reforms. One point of discussion that was previously raised whether a lack of economic reform by government is seen as disinflationary. Villeroy also added that there is a need for stronger governance of the euro area, as he opines that the Eurozone cannot afford another missed opportunity and will need to act swiftly without losing the long term view
GBP – Sterling remained supported this week as the latest polling data continues to show growing support for the Vote Stay campaign. Optimism regarding the likelihood of the UK staying the EU has seen markets disregarding weak data sets with Q1 GDP printing below expectations. S&P warns that the GBP may potentially lose its reserve currency status should Brexit becomes an eventuality. A vote to leave the European Union on June 23 may dethrone the GBP and may even threaten the nation’s AAA credit rating, warns S&P.
JPY – Japanese Finance Minister Taro Aso said on Wednesday he told his G7 counterparts at a finance leaders’ meeting last week that his country will proceed with a scheduled sales tax hike next year as raising the sales tax is a very important factor in maintaining trust in Japan’s finances. Aso also noted that Japan is not intending to devalue their exchange rate, despite having recently warned that they would take steps to counter any further JPY strength.
AUD – AUD hovered near three-month lows on falling iron ore prices and speculation that the Reserve Bank of Australia (RBA) will ease policy further. RBA Governor Glenn Stevens commented on Tuesday on uncertainties over the economic transition in China, Australia’s biggest export market, which weighed on the Aussie. Growing US rate hike expectations are also putting the antipodean currency under pressure much to the delight of the RBA.
CAD – CAD strengthened against the USD after the Bank of Canada’s statement was less dovish than some investors had expected. The Bank of Canada kept interest rates on hold at 0.50 percent, saying the economy would shrink in the second quarter because of the recent wildfires in Alberta.