USD: Central Bank Impact

Speculation of a rate hike, with Federal Reserve regional presidents as well as analysts weighing in on the matter, are continuing to abound, driving the dollar to positive highs against a basket of other major currencies. The prediction going into this week: 54% of traders think the Fed will raise rates by the end of the year.

The dollar ended last week with a two-week rally, with further gains expected against the Japanese yen, the pound and the Aussie dollar. After falling to an almost one-year low at the beginning of May, the Bloomberg Dollar Spot Index posted consecutive weekly gains on Friday, reaching a 6-week high after April retail sales figures came in beyond expectation.

If the Bank of Japan follows through on its resolve to boost inflation, the greenback will further benefit. Any decision by the European Central Bank remains a surprise, and could impact the dollar, but for now, hedge funds and other large speculators are reducing bets on dollar weakness.

Tomorrow will bring Housing Starts numbers, as well as the Consumer Price Index and data for industrial production. On Thursday, jobless claims will give an indication of economic health.

EUR: Questions about growth

When it comes to poor Eurozone growth, Germany was the outlier last week, seeing its strongest growth in two years and better than expected data overall. Meanwhile, Italy and Greece saw base level or contracted growth, raising concerns about economic outlook for the Eurozone. It doesn’t help that emerging market equities have fallen, and demand from these markets is lower, impacting growth. European Central Bank President Mario Draghi is set to undertake a stimulus plan in June to inject some vigor into the economy. Meanwhile, lack of upward economic movement is continuing to press on the euro.

What’s coming this week? The data cabinet is quite full. Peter Praet, a member of the ECB Executive Board, will make statements tomorrow morning, in addition to the release of trade balance data. On Wednesday, the Consumer Price Index is expected, and construction output figures will be revealed Thursday. One of the week’s biggest events will be the ECB Policy Meeting Accounts, also coming on Thursday.

GBP: Waves of weakness

You can’t talk about the pound sterling these days without mentioning the B-word. Much of the news coming out of the UK over the last week has been underscored by heightened anxiety around the Brexit issue. Last week’s Super Thursday yielded a spate of weak data, including the quarterly Inflation Report, in which the Bank of England warned that leaving the EU could lead to an even lower path for growth and further sterling depreciation. Uncertainty about the outcome is cited by companies as a leading cause for weak production, with industrial production growing only 0.1% compared to the estimated 0.3.

Looking ahead, more data is expected, with figures for inflation, unemployment and retails sales to come. Tuesday in particular will be a data-heavy week for the UK. If precedent is any guide, this week may disappoint the UK economy as well.

CAD and AUD: Oil will have its say

Despite growing estimates of damage to the Canadian economy from the wildfires, and the Australian dollar still absorbing the negative impact of the Reserve Bank of Australia’s decision on rate cuts, these two commodity currencies are standing to benefit from recent good news on oil. The global glut that had throttled prices has eased up one quarter earlier than forecast. As a result, Goldman Sachs has revised its price projections for oil earlier and higher, to $50. Output has been minimized thanks to a couple of different fronts: the wildfires in Alberta have taken resources away from drilling, and recent political events in Nigeria are slashing production. Demand is now outpacing supply. The loonie and the Aussie dollar can expect to reap benefits from this. For the Aussie dollar, recent bad news out of China is also proving beneficial and providing a boost going into this week.

Today’s Bank of Canada Review, a quarterly publication, features articles on the Canadian economy that will provide further insights. Friday is highly anticipated: bringing retail sales, the Consumer Price Index, and auto sales data for Canada. For Australia, tomorrow will bring RBA Meeting Minutes, and new motor vehicle sales data, an important indicator of consumer health. Thursday will see employment change and unemployment rate figures.