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Central bankers outling a more positive tone and signalling removal of monetary accommodation, supported the CAD, EUR and GBP; NZD still trading around 0.7300 USD; AUD remains supported by commodity prices

Currencies
Central bankers outling a more positive tone and signalling removal of monetary accommodation, supported the CAD, EUR and GBP; NZD still trading around 0.7300 USD; AUD remains supported by commodity prices

By Jason Wong

In a week with little top-tier data so far, central bankers remain in the driving seat for markets.  They are outlining a more positive tone about the outlook and signalling removal of monetary accommodation, supporting the CAD, EUR and GBP.

Markets are sensing a coordinated effort by central bank heads to give the message that global monetary policy is close to an inflexion point and economies can handle some removal of monetary accommodation. 

The CAD has led the charge, after Bank of Canada Governor Poloz reiterated in a CNBC interview that the central bank may contemplate a rate hike. The OIS market now sees a 69% chance of a tightening next month, up from 39% yesterday. These comments have come alongside a fifth consecutive daily increase in oil prices, taking WTI up to USD 44.75, supported by a reported fall in US gasoline stockpiles.  USD/CAD is down 1.3% to 1.3030, on track to close at its lowest level since February.

GBP has been well supported as the market interpreted BoE Governor Carney’s speech as more hawkish than last week’s missive. He said that “Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional”.  This puts Carney’s view closer to three of his fellow MPC members who recently voted for a vote than previously thought.  The market isn’t confident that a hike will come as soon as the next meeting in August, but OIS pricing moved to a better than even chance of a hike by November, sent the UK 10-year rate up 6bps to 1.15% and drove GBP 0.9% higher to 1.2930.

There has been some volatility in EUR as some headlines hit the screens, with ECB “sources” said to say that the market had misjudged Draghi speech yesterday which had sent the EUR and German bond yields rocketing higher.  Apparently, the "speech at ECB Forum was intended to strike a balance between recognising the currency bloc’s economic strength and warning that monetary support is still needed”.   This followed an earlier CNBC interview in which ECB Vice President Constancio also told CNBC that there was nothing new in Draghi’s remarks.  EUR plunged from 1.1380 to below 1.13 but has reversed that move as Draghi had a chance to clear up any confusion but stuck to the script.  EUR is back to 1.1380, up 0.3% for the day.

The NZD has largely been a bystander amidst all this central bank commentary and has settled around 0.73, up 0.4% for the day as better risk sentiment has prevailed.  The low 0.73s is a key area of technical resistance that has been in play over the past couple of weeks.

The AUD remains well supported, with a more positive commodity price backdrop a notable feature. Out of the spotlight, iron ore prices have been climbing higher and have recovered about 17% over the last couple of weeks, helped by a 10% gain over the past two days. This has seen NZD/AUD drop to 0.9560.  Also flying beneath the radar has been a drift lower in NZX whole milk dairy futures which have fallen to USD 3000 per tonne, down about USD 200 over the past month or so.


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1 Comments

From Fed to BIS to the main central banks; it's all happened at a rapid pace. Central bankers are faced with lying about a recovery when they know it's time to burst the various bubbles. An unfortunate requirement for their job.

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