USD remains the strongest currency in the longer term. The recent Core CPI and NFP readings have reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most counterparts and therefore may be susceptible to pullacks - such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy, however USD saw heavy selling as the economic projection for 2016 and 2017 scaled back interest rate expectations and growth.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which gave the currency some temporary positive sentiment. There is currently a high correlation between bund yields and the euro; bunds should be monitored if trading euro. If Greece fails to make any of their imminent repayments, the euro will likely be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.
GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The recent jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase.
AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD. Overall the bias for AUD is on the bearish side of neutral, until we see more data. Language from Governor Stephens last week was dovish. A resumption of the downtrend in base metals will also see AUD pressured.
NZD has a new official cash rate of 3.25% after the RBNZ cut rates on June 11. The Bank has left the door open for further easing and as such the Kiwi dollar is a bearish currency in the medium term. The recent GDP reading showed a huge miss and this adds weight to the chance of another rate cut, with some banks calling for two more cuts in 2015. Kiwi is at multi-year lows.
