Summary:

• RBNZ stays on hold as expected, but it offers a bit more dovish stuff
• BoC’s Poloz brushes off the soft macroeconomic data, July’s rate hike odds stay largely intact
• Wall Street ends the day lower, US bond yields stay lower mirroring restrained appetite for riskier assets

Beginning with the currency market one can identify the NZ dollar as the weakest major currency in the morning while elsewhere results are equivocal. NZD’s underperformance stems from the fact that the Reserve Bank of New Zealand delivered somewhat more dovish remarks when it left rates untouched in line with expectations. On the surface, not too much has changed since the latest meeting in May (notice we were offered no press conference, updates to macroeconomic forecasts or a monetary policy statement) as the bank kept the reference that a change in rates might be either up or down. However, the bank added that “the best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period” – this phrase persuaded some NZ-based banks to change their view with regard to the future monetary policy seeing a greater degree of ’dovishness’.

The bank also said that in the wake of trade tensions in some major economies the economic outlook has been tempered slightly. Finally, it admitted that inflation could accelerate in the near-term due to higher energy prices (notice that these kind of projections have been included in almost each monetary statement irrespective of what a central bank we mean). After the meeting even the most devoted hawks flew away as chances to see higher rates yet moved lower, and therefore markets see little odds for a rate hike over the upcoming twelve months. In the morning the NZ dollar is losing 0.25% against the US dollar as of 6:33 am BST being, along with the British pound, the weakest major currency.

The AUDNZD moved livelier higher in the aftermath of the RBNZ meeting clearly bouncing off 1.0790. Looking forward, one needs to take into account an increase toward 1.0980. Source: xStation5

Commodity-related currencies drew more attention over the past several hours, and we do not mean just the NZD. The CAD was also in the limelight yesterday afternoon on the back of the Bank of Canada’s Poloz appearance. His comments were classified rather as the hawkish ones, and this is especially true when we allow for the latest remarkably poor economic data including retail sales, inflation as well as GDP. In fact, he admitted that inflation is exactly on the target whereas national accounts are exactly as they forecast in April to the decimal point therefore he reiterated that the bank’s underlying narrative appears to be correct. Finally he openly claimed that a current situation warrants higher rates, and it will be done gradually. At the end of the day, Poloz brushed off the latest streak of weak prints saying that one data point that was below market expectations is not going to throw us off, and played down to some extent trade war risks claiming the investment outlook is still ’reasonably robust’ even as it has been hurt a bit lately. The next BoC meeting will take place on 11 July.

A technical outlook look ambiguously as the pair has possibly drawn a double peak pattern at the daily frame on the one hand, but on the flip side it broke and then successfully tested a trend line therefore caution seems to be warranted. For all considering selling the pair it seems that waiting for a durable move below the blue line could be a good strategy before involving in the market. Source: xStation5

Entering slowly the European session one may spot that risk-off still prevails at least to some extent as the US yields hover close to their yesterday’s lows (the 10Y yield keeps moving a notch above 2.83% at the time of writing). Soured moods resulted in quite heavy falls on Wall Street where the NASDAQ (US100) closed 1.55% lower, the SP500 (US500) lost 0.9% whilst the Dow Jones (US30) gave back 0.7%. Gloomy spirits were shared among some Asia-based investors bringing two Chinese indices moderately lower (ca. 0.4%). On the other hand, the SP500 futures are trading 0.3% higher implying a positive start when the cash market opens.