USD: Affected by risk sentiment
The June meeting of the Federal Reserve last week was highly anticipated by global markets, but the FOMC failed to reassure dollar bulls that a rate hike was coming in the near-term. Fed Chair Janet Yellen, citing mixed economic data and global risks from Brexit, took a wait-and-see approach to rates, keeping them on hold and declining to give a projection for when a hike might happen. While the dollar weakened slightly from the dovish remarks, global uncertainty around Brexit fueled buying sentiment for the US dollar last week. Investors turned to the greenback, along with the Japanese yen and gold, as a safe haven, increasing USD strength against most of its peers. This morning, with markets turning risk-on, the dollar faced strong selling pressure, slipping along with gold and the yen.
Looking ahead, Janet Yellen will testify before the Senate Banking Committee tomorrow and Wednesday, followed by a Q&A session. Her comments could imprint volatility across the board.
EUR: Under pressure
The shared currency tumbled under the weighty pressure of Brexit uncertainty last week. Investors, anticipating an adverse impact on the Eurozone economy in the event of a “leave” vote, fled from both the pound and the euro and turned to the traditional havens of the greenback, the Japanese yen and gold. However, betting odds for Brexit evaporated over the weekend and heading into this week, spiking euro strength in today’s session. Until Britain votes on Thursday, it’s all about Brexit right now for the euro and the common currency is still quite vulnerable.
European Central Bank President Mario Draghi is speaking tomorrow and is expected to touch on current economic performance. His statements could impact the euro in the short-term. The ECB will also hold a non-monetary policy meeting on Wednesday, along with an announcement on targeted longer-term refinancing options.
GBP: Brexit anxiety lessens
Starting off with a look at recent data, the UK has seen some mixed figures lately. May CPI missed expectations, increasing worries over achieving the desired inflation target. Retail prices climbed, but producers’ prices showed a drop. As expected, the Bank of England kept rates on hold at its meeting last week.
After weeks of polls showing widening support for the UK to leave the European Union, the tide shifted on Friday after the tragic murder of a British MP. Polling is now showing stronger support for a “Bremain” vote, and as a result the pound has strengthened the most since 2008, rising against all major peers. The lighter mood as Brexit anxiety lessened is boosting global equities, which rebounded this morning from a four-week low. With the panic seeming to unwind, markets are becoming risk-on again. However, with just a few days remaining till Thursday’s vote, a lot could still change. Analysts anticipate that the pound will climb if the UK remains in the union, but could see a much bigger fall in the event of a “leave” win.
Looking ahead, the data cabinet is bare of major data while the UK readies itself for the critical vote on Thursday.
CAD and AUD: External factors have their say
The Canadian dollar was hit by risk-off market sentiment last week as investors fled to the greenback. The currency also took a blow from a ramp-up in oil production in the province of Alberta as it bounced back after last month’s wildfires, contributing to lower oil prices. Meanwhile, Australia’s May jobs data showed an economy in fairly good health, but external events and their impact pointed to the Aussie dollar’s vulnerability to outside factors. Brexit concerns touched both Australia and Canada, with the Bank of Canada, along with other central banks, voicing concerns about global economic impact if the UK should leave the union. However, this morning saw both currencies strengthen against the dollar as markets gained confidence that the UK would remain in the union. Oil snapped back from a six-day losing streak, boosting the Canadian loonie, while stronger equities helped the Aussie dollar.
This week will see important economic data from both Australia and Canada that may impact rates. The Reserve Bank of Australia will release the minutes from its last policy meeting tomorrow, which may advance the Aussie dollar if the central bank shows a willingness to move away from its quantitative easing cycle and maintain a wait-and-see approach. Meanwhile, Canada will see monthly retail sales figures on Wednesday. As the Canadian dollar is affected by oil prices, the release of US oil inventories data, coming Wednesday, may also influence CAD’s direction.