The Loon ruffles some feathers
UK politics continues to be the main narrative with the usual conversations around President Trump providing the background fodder. However, the Bank of Canada did more than ruffle a few feathers with some unexpected hawkish rhetoric
Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada signalled that Canadian interest rates have bottomed and the next policy shift will likely be higher came like a bolt from the blue. Her guidance caught more than a few traders off guard as the Loonie rallied hard and fast from 1.3470 to 1.3310 during the NY session.
Sterling traded in bedraggled fashion overnight as there remain no protective legislative measures in place engulfing the markets in a cloud of uncertainty.While GBP near term direction will continue to be driven by the post-election fallout, but the prospects for the Pound look increasingly gloomy as the possibility of another Tory leadership vacuum enters the picture at precisely the wrong time for the UK.
USDJPY fell below the psychological 110 level on the back of falling US yields as the markets bore witness to an acute bout of risk aversion with the NASDAQ correction moving into day two. However, with the FOMC this week it is unlikely yields will press much lower and we should expect the USDJPY make a minor comeback
EURUSD remains exceptionally stable despite the political fallout in the UK. The market appears content to look past whatever dovish interpretation gleaned from last week’s ECB, but given few catalysts I suspect the EURUSD to remain mired within the current ranges ahead of the FOMC.
The Aussie dollar remains very resilient although the Australia May NAB business confidence slid to 7 versus 13 prior and business conditions fell 12 versus 13 previous.
The commodity block is trading on a positive note riding the Canadian dollar coattails after the BOC signalled a probable shift in monetary guidance.What’s at play here is the notion that central bankers, in general, may not want to fall behind hind the curve more so if inflation pressures see a resurgence. Perhaps some of this argument may be rubbing off locally and supporting the AUD