USD: Winding down the fanfare
This week will likely be a lot quieter than last week for the US dollar. With no Fed speakers and only second tier data gracing our calendar, we may be subject to moves outside of domestic developments.
Political risk is still whirring in the background as a vote on the healthcare bill has been delayed until Senator John McCain recovers from eye surgery. Senate Majority leader Mitch McConnell is facing a high-stakes vote, and the odds aren’t great. Two Republican senators have publically come out against the bill, losing another would likely mean back to the drawing board. McConnell has already admitted the possibility and would seek a more bipartisan-friendly draft if he cannot push the legislation through. Headlines on whether the bill will pass could direct some USD moves – investors have long been looking for confirmation that the Trump administration can push legislation through Congress and if they get it, we would see this as a USD-positive.
Housing data on Tuesday and Wednesday will be watched for any large departures from consensus, weekly unemployment on Friday as well.
EUR: Waiting for Draghi to drop the mic
Eurozone inflation led the economic calendar for Europe this week, but revealed little to excite markets. Inflation came in as-expected, confirming a slight slowdown in June and exactly in-line with the flash estimates.
The ZEW survey of economic sentiment in Germany and the euro area may garner some attention Tuesday, and all eyes are on July’s ECB meeting Thursday.
Investors will be concentrating on the language surrounding asset purchases, looking for hints on when and where the bank will scale back their massive stimulus programme. We think this is likely to be a non-event, as the ECB holds fast to the reigns of “not yet.”
GBP: Trouble at home?
Sterling moved lower Monday morning as the UK and EUR begin round two of Brexit negotiations. We will be closely monitoring headlines surrounding not only the meeting itself, but the domestic dealings within the British government. Infighting within Theresa May’s increasingly fractured conservative party could distort the message of the government’s aims in the negotiations, which would in turn weigh on the pound.
For those who didn’t catch the Daily Update today, 20 months might sound like plenty of time to negotiate a break with Europe, but it’s an intensely complicated process. The European Commission has 12 pages dedicated to regulate marketing standards for bananas (yes, really).
Bonus round: How well do you know Brexit? We’ve supplied the answer to question two of the Bloomberg Brexit Quiz, why not see how far you can get?
Tuesday and Thursday are the heavy-hitters for UK data. Tuesday, we delve into the nitty gritty details of price inflation, from the composite headline to core prices which continue to float higher thanks to a weaker currency. Thursday, retail sales should shed some light on consumer spending. Both of these are of vital importance to monetary policy. The Bank of England is torn on raising rates as rising inflation is depressing real wages and could curtail consumer spending.
AUD: Can China’s expansion carry Aus with it?
China’s economic expansion beat estimates in the second quarter. GDP growth accelerated, rising 6.9% annually. Demand at home and abroad spurred factory activity in June as well. Chinese industrial production expanded 7.6% year-over-year, well above analyst estimates of 6.5%.
This has helped the Australian dollar pickup after a slight dip overnight. Significant gains for AUD last week will look to domestic data to push higher against the greenback, and there is plenty in the pipeline.
The Reserve Bank of Australia’s meeting minutes will be released overnight Tuesday. Employment figures towards the end of the week will also be watched.
CAD: Living the high life
Canadian dollar is still living the euphoria of a hawkish Bank of Canada (BoC) rate rise last week. Oil prices were also firmer after Chinese growth accelerated more than expected in Q2 which should keep CAD fairly stable, especially given the quiet backdrop of US data.
Retail sales and inflation will break the silence Friday. Analysts are expecting inflation to slow in June, and an upside surprise would easily take CAD higher given Bank of Canada’s blatant optimism towards the economic outlook. The BoC emphasized that they see weaker data as “transitory” and will look through it towards a more optimistic long-term outlook. This should temper any downside surprises in our view.
JPY: Will Kuroda keep the faith
Yen was mixed last week, closing higher against the USD but lower against the CAD as monetary policy is expected to diverge from the two trading partners. We expect yen to follow trading flows against both of these currencies for the start of the week.
The Bank of Japan will conclude a two-day monetary policy meeting on Thursday and is broadly expected to leave policy unchanged. Their updated outlook report may include an upgrade to the economic assessment given recent comments from BoJ Governor Kuroda’s recent comments which seemed to take a more optimistic view on the economy after committing to more sovereign bond purchases to prop up the economy.