One of the most interesting occurrences in the G7 meeting besides the Greek discussions was the President Obama’s comment that the strong USD was a problem, and the subsequent vehement denial, hence a reason for the USD ending the week generally weaker. The Reserve Bank of New Zealand cut its official cash rate last week, also leaving hints of possible further cuts, depending on the emerging data, sending the NZD down sharply, while Japan’s Abe boosted the JPY after comments that the weak currency was advantageous to the country’s economy.
USD DATA AND OBAMA’S COMMENTS
Although economic data from the US last week was generally positive, the USD ended the week lower. Perhaps it was the usual post NFP reversal pattern which has occurred 9 times in the last 12 years. It was also fuelled by President Obama’s comments that the strong dollar is a problem, which sent the dollar spiraling. These comments where quickly denied. As June FOMC is upon us, talks of a June rate hike have been subdued; thanks to recent data showing the American economy is not ready for a rate hike. Even though both the World Bank and the International Monetary Fund have advised the Fed to postpone rate increase till next year, I still believe a September increase in most likely.
NZD SINKS, JPY SOARS
Multiple bearish comments from the Reserve Bank of New Zealand sent the NZD down sharply. They cut the cash rate from 3.25% to 3.5%, also adding that further easing may be appropriate, depending on emerging data. The bank is also quoted as insisting the NZD "remains overvalued. A further significant downward adjustment is justified." The yen has been in an extended weakness against the dollar for many months. PM Shinzo Abe’s comments served as a catalyst to boost the yen last week, with his comments that a weaker yen has a good impact on Japanese companies doing business overseas and helps attract tourists to Japan, as the JPY ended this week at its strongest against the USD for the year so far.
THE WEEK AHEAD
The biggest news on the calendar for the week is by far the FOMC statement on Wednesday. Ever since the conclusion of the Fed Quantitative easing program last year, it had been much anticipated that rates will begin to be lifted from multi year low in June. Recent data though has again prompted speculation for rate hikes later in the year. It will be vital to hear what the Fed has to say in this meeting.
Monday, June 15- We have Canada’s manufacturing Sales m/m and ECB President Draghi due to testify on monetary policy before the European Parliament's Economic and Monetary Affairs Committee, in Brussels.
Tuesday, June 16- We have Australia’s monetary policy meeting minutes. Last week, the country reported positive employment change and unemployment rate data. The unemployment rate came at 6.0%, a one year low. This amongst other things are expected to be addressed in this meeting. UK’s CPI entered deflationary zone last month, coming at -0.1%. It was dismissed as a temporary situation and forecast to come at 0.1% this month. For the rest of the day, we have the European Court of Justice due to announce a ruling regarding the constitutionality of the ECB's Outright Monetary Transactions policy (OMT), in Luxembourg. As well as the German ZEW economic sentiment and the US building permits.
Wednesday, June 17- It is another big market day with lots of high impact news. First from the UK, we have a host of data. Average Earnings Index 3m/y, Claimant Count Change as well as MPC Official Bank Rate Votes. We have Canada’s Wholesale Sales m/m, New Zealand’s GDP q/q. And the all important FOMC Economic Projections and FOMC Statement.
Thursday, June 18- Ever since the historic SNB event of January 15,2015, more attention has been placed on reports from the country’s policy makers. The SNB will release its Libor rate largely expected to remain at -0.75% along with the SNB monetary policy assessment. We also have UK’s Retail Sales m/m, EUR Targeted LTRO along with Eurogroup Meetings. From the US, we have the CPI m/m, forecast to come at 0.5%. This could potentially be the highest inflation rate since July 2013. We also have the unemployment claims and the Philly Fed manufacturing index.
Friday, June 19- To end the week, we have Japan’s Monetary Policy Statement, along with the BOJ Press Conference. Latter in the day, we have Canada’s Core CPI m/m and Core Retail Sales m/m.