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Euro Bid
The Euro has seen something of a relief rally against the likes of Sterling and the US Dollar in mid-week trade, it appears the markets have had their fill of the Italian debt crisis story for now with the event fully in the price of the currency.
We note news reports suggesting the League and Five Star are to have another crack at forming a new government, right now markets take the establishment of a government by the two parties as a positive. What they do not appear to like is the idea of the country going to the poll and delivering an even greater mandated to the two eurosceptic parties.
Watch for headlines concerning the success or failure of the latest moves.
"The market is signalling very clearly that is does not like the idea of a new crisis in the euro zone - centring on Italy - at all: the yields for Italian bonds are rising rapidly and the euro is under pressure against the dollar. Fears of early elections and future anti-European politics in Italy are real and are leading to a loss in confidence," says Analyst Antje Praefcke with Commerzbank.
British Pound Mixed
Sterling is a mid-table performer in mid-week trade having caught a nice bid against the Dollar, Yen and Swiss Franc i.e. the safe-haven currencies. This tells us risk sentiment is driving the markets on the basis of Italian political developments.
We don't see Sterling taking a lead owing to an empty data calendar and lack of fresh Brexit headlines.
US Dollar on Backfoot, Watch ADP and GDP Data
In the current environment the Dollar is taking a breather.
Be aware that the currency is in a strong uptrend and therefore it might not be long before Dollar buying reasserts.
Today, thereโs an added layer of interest from US ADP employment change numbers and GDP data, markets are looking for a GDP reading of 2.3% for the first quarter while the ADP non-farm payrolls number is forecast to read at 190K.
Big Day for the Canadian Dollar
We will be covering the Canadian Dollar through the Bank of Canada event due at 15:00 B.S.T.
CAD is seen under pressure ahead of the BoC meeting and markets expect the BoC to keep its target for the overnight rate at 1.25% (85% priced in by Canadian interest rate futures) and stick with its gradual rate hike bias.
"Nevertheless, ongoing trade friction with the US and falling crude oil prices will continue to weigh on CAD in the nearโterm," warns Elias Haddad with CBA.
New Zealand Outperforms, FSR Digested
The New Zealand Dollar is higher across the board, with only the Scandi SEK and NOK doing a better job.
There was little new in the RBNZโs Financial Stability Report (FSR) which forms the main focus of the NZ Dollar today.
The RBNZ notes the New Zealand financial system is sound but remains wary about housing, dairy, and the reliance of banks on foreign funding, with these vulnerabilities having remained broadly stable in the past six months.
According to analysts at Kiwi lender ASB, the message remains one of ongoing vigilance, with the message that the RBNZ will be ready to adjust policy settings when needed.
There are no fresh implications for the OCR or the housing market from the May Financial Stability Report and we expect gradual increases in the OCR from August 2019.
Also in New Zealand, residential building consents dipped as expected in April. Total consents fell 3.7% over the month, led lower by a 1.4% fall in house consents and a 27% fall in the volatile apartment contents. However looking at the broader consents trends, the April data are relatively healthy.
Australian Dollar Stronger
The Aussie is bid in the general risk-on mood.
Domestically, it is reported the number of residential building approvals fell by 5% in April. This was a slightly larger fall than expected (โ3%).
Approvals for houses were broadly unchanged while approvals for detached dwellings fell by 11.5% in the month. On an annual basis, approvals are down around 7% from their peak in midโ2016.
"This is a relatively small fall compared to past dwelling construction cycles where approvals have fallen by as much as 60%. The difference this time is that population growth is firm and interest rates remain at record lows," says CBA's Haddad.
Rand Bid
The Rand is also tracking global risk sentiment, and with markets in a buoyant mood mid-week, the Rand is bid.
"The Rand has hit seven new higher highs since it bottomed in February. The last high was 12.88 against the US dollar. If it breaks through 12.70, which it should do during the first half of today, itโs likely to head for 12.88 before Fridayโs US payrolls figure, opening a good chance to test 13.00 if the payrolls number is better than expected," says Isiah Mhlanga with RMB in Johannesburg.
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