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Market Macro Wrap 09 Jun 17
The AUD has been a clear winner this week with GBP and SEK number nine and ten among the G10 currencies. GBP weakness was largely driven by the harakiri caused by PM May which ensured that the UK had a hung parliament. That said, PM May is still the most likely to form the government with support from the Democratic Unionist. In our view, Brexit talks are going to be tough for Britain given a minority Conservative government. Also, PM Theresa May own position is tenuous and this will weigh on GBP. In terms of data, next week is big for GBP with UK CPI and unemployment rate due on Tuesday and Wednesday, respectively.
USD has also improved versus the likes of EUR and JPY as Comey’s testimony didn’t reveal any scathing evidence against Trump. Until now there was a lack of a catalyst to push USD higher, however, now the dollar can rise as investor prepare for a potentially hawkish Fed next week. Data to watch out will be CPI on Wednesday before the FOMC the same day.
The ECB disappointed EUR longs as we warned prior to the meeting. That said downside in EUR should be limited as long as data keeps showing improvement. Next week data from EUR is bleak hence, some correcting in EUR can occur.
AUD has improved post a neutral RBA and improving GDP data; in our view, risk appetite should grow despite a hung parliament in the UK and softer oil prices. This should help AUD and CAD but given NZD recent rally we see further upside as limited.