Daily FX Wrap: Data driven trade through the day with the exception of the CAD, but late dip in Oil sees lows through 1.3700 extended. GBP weakness turned around by much better than expected manufacturing PMIs in the UK.
Markets were back to full strength today, but as is now familiar in London trade, higher liquidity sees price action choked off in the majors, with limit breaks garnering little momentum in the aftermath.
USD/JPY is now above the 112.00 level, and has moved against a run of softer data reads out of the US on Monday, with personal income and spending missing consensus and the ISM manufacturing PMIs contracting; most notably the employment index (from 56 to 52). This does not bode well for Friday’s non-farm payrolls release, but we will get a taster on Wednesday from the private ADP survey.
ISM non-manufacturing PMIs are also due tomorrow, while the FOMC meeting in the evening will be a non event given the focus on the Jun meeting and elevated expectations of anther Fed (25bp) hike in the futures market.
GBP saw a turnaround in the aftermath of the manufacturing PMIs, where forecasters pitched their expectations for Apr at 54.0. Higher output and new orders boost the index to 57.3, so the early selling pressure based on Brexit concerns were reversed to a modest degree as Cable reclaimed the 1.2900 handle after dipping to 1.2867. EUR/GBP was also eyeing a move on 0.8500, but was knocked back to just under 0.8450 before levelling off. Construction PMIs tomorrow, but all eyes on the services component on Thursday.
Further weakness in the CAD, as USD bulls continue on the path(es) of least resistance – see JPY above – and we have now breached 1.3700 on what seems to be yield differentials alone. NAFTA worries are in the background, but this does not seem to have affected the MXN as much, while Oil prices are also basing out as traders here await upcoming OPEC meetings promising an extension to production cuts.
Some key data out in the Euro zone ahead, headlined by the Q1 EU GDP release. From this perspective, president Draghi was fairly optimistic in the press conference last week, with’ disappointment’ from the unchanged policy stance only having a brief negative impact on the EUR. That said, we continue to run into sellers at 1.0950 vs the USD, with 1.0970 and 1.1000 levels also said to be harbouring decent supply.
In the overnight session focus turns to NZ who release their latest employment report, with a further gain of 0.8% expected in Q1 to match that of Q4 2016. The unemployment rate currently stands at 5.2%. Earlier today we saw the latest Fonterra auctions showing a 5.2% rise in WMP, with the GDT index rising 3.6%. We saw a modest push on the NZD, but holding off 0.6950 as of late European trade.
The major event risk for AUD is now out of the way, as the RBA stand pat on rates and look set to do so over the medium term. The above NZ data releases may impact on AUD/NZD to some degree, having seen some decent volumes in recent weeks. Australian trade data out on Thursday, but nothing on the slate for Wednesday.
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