It was a fairly uneventful end to an eventful week on Friday. There were plenty of data releases to chew over, but there was little market reaction to them, with end of month and quarter rebalancing dominating any flows.
From the economic dataflow we learned that Japan inflation remained soft, China PMIs and the US Chicago PMI were robust, euro-area inflation core CPI inflation ticked up by slightly more than expected (as forewarned by German CPI data the previous day) and US core PCE inflation was as soft as forewarned by CPI data earlier in the month.
The NZD ended the week on a robust note, up 0.5% for the day at a few ticks over 0.7330, the highest close since November. However that reflected a still-soft USD, with the NZD’s 0.7% gain for the week representing an under-performance relative to most of the other major currencies.
The yen was one of the worst performers (again), with USD/JPY up 0.2% to 112.40 and the yen losing about 1% against the (soft) USD for the week. With core CPI inflation in Japan at zero, the BoJ has very little to show for its extreme form of quantitative easing which sees it currently own about 40% of the Japanese government bond market. Its yield curve control policy to keep the 10-year rate close to zero will require increasing JGB purchases as global bond yields rise. While this puts downward pressure on the yen, the policy is reaching its practical limits as the stock of JGBs left in the market reduces. Some change in policy plan may be forced upon it in the future. NZD/JPY closed the week at 82.4, some 8% higher over the past six weeks.
The AUD was fairly flat on the day, but gained 1.6% for the week. Iron ore prices gained for the fifth day in a row, piling on 14.5% over that time. Oil prices also show signs of recovery, perhaps a reflection of being oversold during their pummelling in the first three weeks of June. WTI crude rose by 2.5% to USD 46, giving it a gain of 7% for the week. This helped support CAD further, taking USD/CAD below 1.30, and taking its gain for the week to 2.3%. The Bank of Canada looks next in line to begin a tightening cycle, with a hike later this month now priced at an 84% chance, up from 37% at the start of last week.
Friday’s trading saw little change in EUR and GBP for the session, but recording gains of 2.1% and 2.4% against the USD respectively for the week, supported by the change in tone emerging from their central bank leaders.
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