Thursday Sunrise: GBP Eyes Brexit Headlines, EUR Momentum Builds, CAD to Focus on BoC, AUD Enjoys Strong Trade Data

Pound Sterling: It's a Brexit Day

With the end-June European Council summit on the horizon, it's time for the UK government to agree on a united stance on a number of issues, most notably the question of the Irish border.

Expect headlines on the matter to roll in over the course of the coming day as the governments top decision-making body - the inner cabinet - meets to thrash out a final position today.

We would expect anything but a unified outcome to be negative for Sterling as  any splits ultimately put the question of Theresa May's administration in doubt, breeding the kind of uncertainty that Sterling detests.

As a taster of how fragile the situation is, the Guardian reports:

"Theresa May is facing a dramatic cabinet showdown with David Davis, the Brexit secretary, over the government’s final backstop plan to avoid a hard border in Northern Ireland.

"As the inner cabinet meets at Downing Street to thrash out the final details of the customs fall-back plan, Davis is expected to push for a firm end date to be included in the agreed text.

"Davis did not rule out resigning if the government’s proposals did not have his explicit approval. “That’s a question I think for the prime minister, to be honest,” he told reporters after a speech at the Royal United Services Institute.

"Brexit will make Britons less safe unless EU agrees to maintain security cooperation, says Davis.

"It leaves the prime minister battling to restore cabinet unity over her customs plans before she flies to Canada later today for the G7 meeting of world leaders."
 
Euro: A Winner on the ECB Narrative

The European Central Bank's June policy meeting is next week, and we expect this to be the key theme for the single-currency over coming days.

The Euro outperformed in the mid-week session on a clear message from one of the ECB's leading decision-makers, Peter Praet who confirmed the end to the quantitative easing programme is in fact fast approaching.

In a speech delivered in Berlin Praet said the convergence of inflation towards the 2% target have improved and the "ending fo APP will be up for discussion next week".

"This is very significant coming from a board member who has always sat decisively on the dovish end of the spectrum and whose views have never been found at odds with those of Draghi," notes Giles Moec, Europe Economist with Bank of America Merrill Lynch Global Research.

Therefore, the ECB story is looking to be a supportive one for the Euro at this juncture.

US Dollar: Geopolitics, G7 Summit

There is little on the US economic calendar, save for initial jobless claims which are the lone data release and the market looks for similar 220k. We don't see this moving USD.

Rather, the bigger picture will matter for the Greenback. We have seen over recent days the USD tends to benefit when stock markets are running scared and sentiment is down. It tends to reverse in a more constructive environment.

The economic calendar over the rest of the week is light, with focus now turning to the G7 leaders’ meeting that kicks off at the end of the week. The Washington Post reports that Trump might refuse to sign off on the G7 statement at the end of the meeting.

If correct, we could see the conditions for another USD rally to build.

Canadian Dollar: BoC Back in Focus

The Canadian Dollar has endured a topsy-turvy few days, rising and falling by sizeable amounts in response to headlines concerning NAFTA and its own domestic data.

But, today the Bank of Canada is back in focus as it publishes its Financial System Review at 15:30 B.S.T. The semi-annual report will give an update on household debt dynamics, likely with a focus on mortgage renewals, and be followed by a press conference with Governor Poloz at around 16:15 B.S.T.

Watch for views on latest developments concerning NAFTA and how it might affect future BoC policy.

Australian Dollar: More Good News on Exports

The Australian Dollar remains an outperformer on global FX markets thanks to the ongoing strong growth experienced in the economy.

"The AUD jumped higher after stronger than expected Q1 GDP data yesterday, and it has sustained that move overnight," says Jason Wong, an analyst with BNZ.

The positive tone extended overnight with news that the country posted a "decent" April surplus of $977m on its trade account. This is more-or-less in line with the consensus call of $1,000m. It was a narrowing from the $1,731m surplus in March but is the fourth consecutive surplus in 2018.

"It has been a pretty good year so far for Australia’s external sector.  Commodity prices have been buoyant and that’s flowed through to higher export receipts.  Corporate profits and government revenue have benefited as a result," says Gareth Aird with Commonwealth Bank of Australia.