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Market Macro Wrap 16 Jun 2017
USD has started to rise versus JPY while falling versus the commodity bloc currencies such as CAD and AUD. The US data continues to be weak but the Fed was relatively hawkish in their assessment; hence, USD avoided sharp falls. That said, the risk appetite is on the rise and we are likely to see improved performance for the commodity bloc currencies. The market is now likely to focus on upcoming Fed speakers early next week; this includes Dudley and Evans on Monday; Fischer and Rosengren on Tuesday.
EUR is one of the weakest G10 currency alongside JPY and CHF but has managed to keep its structure versus USD with EURUSD still above the 1.1100 level. In our view, EURUSD and EURGBP are still positive and focus will turn to Manufacturing PMIs (flash) next week where expectations are of healthy numbers. From there, EUR upside versus USD, JPY and GBP are likely to be data dependent. The French elections second round results late on Sunday are expected to show a landslide victory for Macron; this is priced in and we don't see much of an impact on EUR.
JPY was the weakest currency this week among the G10 and we don’t see much change to the outlook next week as BoJ continues to remain on hold. Governor Kuroda has said that the central bank has no preset idea about Bond buying and that purchases will depend on market conditions. However, he has also said that 2% inflation target is still very far despite output gap shrinking. The BoJ meeting minutes on Tuesday will be in focus next.
GBP somewhat recovered this week due to strong inflation data and hawkish surprise from the BoE. Mark Carney didn't give the Mansion House speech and the market was left with the MPC vote to figure the BoE direction. In our view, the BoE will keep policy unchanged despite the dissent. First, there will be no Forbes at the next meeting; secondly, rising interest rate in the uncertain business environment will further push wages lower. We remain bearish GBP looking to sell rallies.
CAD and AUD are number one and two for the week for reasons both domestic and foreign. Apart from positive risk sentiments, CAD has been buoyed by hawkish remarks from BoC Wilkins and Poloz while AUD is strong due strong jobs report. For Australia the RBA meeting minutes and for Canada retail sales and CPI will be key in providing further short-term direction.