USD: Staying Offered. Bearish.
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Our bearish USD framework remains in place. The Fed’s statement had few surprises, did not push back on current pricing for June and did not reintroduce the balance of risks language, all pointing to a Fed in no rush to hike. Furthermore, weak US data (reinforced by durable goods and GDP this week), China’s mini recovery and oil breaking out to new highs should continue to keep the USD offered.
EUR: Range Bound For Now. Neutral.
Very little has changed following last week’s ECB meeting and we retain our view that EURUSD will be range bound in the near term. The ECB’s language on the exchange rate remained relatively benign but we do expect the ECB to push back if EUR appreciates from current levels. Furthermore, while the economy appears to have had a strong 1Q, forwardlooking indicators point to a sluggish 2Q while Brexit risks and signs of increasing populism (such as the Dutch referendum result) will also limit the EUR’s upside. We remain long-term bears.
JPY: BoJ Turns the Tide. Bullish.
The BoJ failing to deliver any easing measure anticipated by the market has caused JPY strength to come back into play, with USDJPY breaking below 108. The break below 107.63 – the April 11th low – means USDJPY is at the lowest level since October 2014, opening the door to more downside potential. We think there is little to halt the currency appreciation with Japanese retail accounts being the next buyers of JPY. We like selling AUDJPY and EURJPY.
GBP: Rally to Continue. Neutral.
We think the tactical rally in GBP could continue this week supported by strong risk appetite and commodity prices. While the risk premium has fallen, it remains high and is attractive in an environment of declining global risk premia. We like to express this view through short EURGBP, which we continue to hold in our portfolio. This week, we watch the Scottish elections. If the SNP wins a large majority, this could increase the risks around another Scottish referendum which might weigh on GBP.
CAD: Waiting to Buy USDCAD Dips. Neutral.
We remain neutral CAD following the BoC meeting and look to buy USDCAD dips should tomorrow’s GDP print disappoint. The BoC made clear that it is willing to act should recent strong data turn out to be temporary and emphasized the downside risks to the outlook from a strengthening of the exchange rate. Manufacturing and wholesale trade data since the meeting were quite weak but retail sales last week showed Canada’s consumer remained resilient in February.
AUD: RBA in Focus. Bullish.
This week’s very poor 1Q CPI puts next week’s RBA meeting into focus with around a 50/50 chance of cut priced by the market. While we remain structurally bearish AUD and our economists expect 50bps of cuts this year by the RBA, we expect it to pass at easing in May given the release of the Federal Budget that evening and evidence that China’s stimulus is temporarily supporting Australia’s economy. We expect a decelerating China, falling iron ore prices and a slowing housing market to eventually weight on AUD and cause more easing from the RBA.
NZD: Hawkish RBNZ Supports NZD. Bullish.
The RBNZ’s on-hold decision and hawkish statement should continue to provide NZD some support in the near term. The RBNZ softened its language on NZD strength (“desirable” vs “appropriate”), noted risks that house price inflation may be picking up again and sounded more optimistic about inflation reaching target. Too much TWI appreciation would make easing more likely but we believe NZD has room to strengthen from here as long AUDNZD positions continue to unwind.