Currency Update 2nd of May

Today is a bank holiday in the UK which means volumes are expected to be very light. The London session is light on economic data too. Start your week with the currency update below.

Currency update

USD: The Fed’s April 27 statement failed to provide any further clarity on when the Bank may raise rates. There was no indication in the statement that a rate hike is likely in June, with Fed fund futures pricing a less than 20% chance of a hike at that meeting. CPI for March slightly missed estimates with Core dropping to 2.2% y/y from a prior of 2.3% and for the month, missing estimates at 0.1% versus 0.2% expected. Headline inflation also dropped from prior and missed estimates at 0.9% y/y. Employment figures for March were solid with 215,000 jobs added, a rise of 0.3% in Average Hourly Earnings, and an increase in Participation Rate to 63.0%.

EUR: GDP for Q1 beat expectations at 0.6% q/q versus expectations of 0.4%, and at 1.6% y/y versus expectations of 1.4%. The impressive beat is largely due to the pick-up in France’s economy at the start of the year, with GDP printing at 0.5%, and the impressive recovery in Spain’s economy, which expanded by 0.8%. Inflation data for April has pushed the Eurozone back into deflation. CPI y/y printed at -0.2% versus expectations of -0.1%, and Core CPI printed at 0.8%, below expectations of 0.9%.

GBP: Fundamentally a slightly bullish currency, however market expectations regarding the UK’s EU referendum will remain the primary driver of price action. Preliminary GDP for Q1 printed at 0.4% q/q as expected, however GDP y/y slightly beat expectations at 2.1% vs 2.0% expected. Average Weekly Earnings for February increased by 1.8%, below expectations of 2.3%, Claimant Count Change also missed expectations, increasing by 6,700 vs an expected decrease of 11,300. For the month of March, Core CPI m/m printed at 0.6%, double the expected 0.3%, and core y/y printed at 1.5% above expectations of 1.3%. Headline CPI also beat market expectations at 0.4% m/m and 0.5% y/y.

AUD: CPI for Q1 missed by a wide margin with Trimmed Mean CPI printing at 1.7% y/y, below expectation of 2.0%. This is well below the RBA’s 2% target for inflation and hence greatly increases the chances of a cut at the May 3 meeting. This makes the AUD a bearish currency for now. Employment data for March beat estimates at 26.1K vs expected 18.0K for the Employment Change, whilst the Unemployment rate fell to 5.7% vs expectations of 5.9%.

NZD: The RBNZ kept rates on hold at the April 28 meeting, but maintain a strong easing bias which suggests another cut at the June meeting. Fundamentally a weak currency given the RBNZ’s easing bias, however currently seeing upside for the same reasons as the AUD. CPI for Q1 slightly beat estimates at 0.2% q/q versus expectations of 0.1%. Year-over-year CPI matched estimates at 0.4%, well below the RBNZ’s target mid-point of 2%. Excluding petrol prices, CPI rose 0.7% y/y.

CAD: A neutral to weakly-bullish currency, with sentiment in lock-step with WTI. Core CPI for the month of March rose 0.7% versus an expectation of 0.3%. This puts year-over-year core inflation at 2.1%. Retail Sales Excluding Automobiles rose 0.2% for February, well above the expected half-percent decline. Solid data from Canada during April has erased any expectation of easing this year, for now.

JPY: The BoJ kept policy unchanged at the April 28 meeting, which saw massive strength in yen across the board, given the market pricing for a potential announcement of further easing. The BoJ may ease further at the next meeting on June 16. Tokyo CPI Ex-Food & Energy for April was at 0.6% y/y. The BoJ measure of National Core CPI remained steady in at 1.1% y/y for March.

CHF: Fundamentally a weak currency, highly correlated with moves in EUR. The franc is fundamentally a weak currency given the SNB’s negative interest rates, however it can suddenly rally on safe-haven flows. The SNB regularly recite that the franc is overvalued and they are prepared to intervene to weaken the currency. The franc’s direction is difficult to predict due to regular intervention by the SNB.