By Kymberly Martin
Most currencies have traded reasonably tight ranges since the start of the week. The GBP/USD has nudged a little higher whilst the CAD/USD has been the worst performer.
In fairly uneventful trading, all major currencies now sit within about 0.6% of where they started the week.
Equity markets were fairly flat in Europe, while the S&P500 is currently down 0.4%, led by the energy sector. The WTI oil price has declined 2.4% overnight and the broader CRB global commodities index is down 0.9%. This weighed on the CAD and NOK which have been the two weakest major currencies. The USD/CAD has traded up from 1.3130 to 1.3210 currently.
The delivery of German IFO survey data overnight showed that the business climate and optimism had declined in July, but not by as much as expected. The EUR/USD sits a little higher this morning, just above 1.0990.
In the UK, the quarterly business optimism survey for July plunged to its lowest level since early-2009 (unsurprisingly given the June ‘Brexit’ vote). A bit of a decline in the GBP/USD set in after this release. However, it found support just below 1.3100 level before rebounding to 1.3140 currently.
The AUD/USD was on a steady ascent for much of yesterday afternoon, touching highs above 0.7490. However, it has declined alongside commodity prices in the early hours of this morning, to trade around 0.7470 currently.
Looking ahead, Wednesday’s Q2 CPI release will be a crucial influence on RBA rate cut expectations and the AUD, ahead of the RBA’s meeting next week. Currently the market prices a 67% chance of a 25bps cut next week and more than 40bps of cuts within the year ahead. Our NAB colleagues expect a 0.5% core CPI print relative to consensus at 0.4%. If delivered, this could provide some near-term support to the AUD.
The NZD/USD fell early yesterday afternoon to test support at the 0.6960 level. However, it soon found its feet and has consolidated above 0.6980 overnight.
Today, NZ trade balance data to June is due, although it is unlikely to be a major currency mover.
There is a smattering of US data releases scheduled tonight. However, the market will have tomorrow night’s US FOMC meeting firmly in its sights. But we would be surprised if the inherently dovish Fed were to cause the market to notably ramp up its rate hike expectations, and hence provide a significant boost to the USD. That task will likely fall to future data delivery.
Currently, Fed fund futures price less than one 25bps hike within the year ahead. Our core view is for a hike by year-end.
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