Wednesday AM: Sterling - CBI & Bank of England, NZD - RBNZ Meeting, USD - Slew of Data, CAD - Poloz on the mic

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Sterling: CBI, Bank of England

Today's calendar on Sterling is a third-tier stuff:

The Bank of England's financial stability report is due at 09:30 B.S.T. and Governor Carney is expected to make an address around the same time.

The topic of the address appears to be unrelated to monetary policy and more related to the Bank's governing role over the financial sector, so we doubt either will impact markets.

That said, with the Bank has being quite active in their guidance since the June policy meet, we won't discount surprises and will be alert for anything out of Carney's mouth around this time.

Of note is the CBI distributive trends survey due out at 11:00 B.S.T. Readers will have noted we said the survey was due out yesterday, but for whatever reasons it falls today.

The Survey which will give an insight into how the retail sector is performing at present. This doesn't tend to have a major impact on Sterling but this month's release will be watched by markets who are keen to see just how solid the economy's current acceleration really is.

"UK retail sales growth surprised on the upside in both April and May after a sluggish start to the year. A key issue is whether that rebound merely reflects the impact of moving from March’s unusually bad weather to much better spring conditions. Certainly that has played a role but there is also a case to be made for a more lasting improvement. In particular, household spending power may be picking up at least modestly as inflation has peaked for now while wage growth seems to be on the rise," says a note from Lloyds Bank ahead of the CBI release.

Out earlier in the day was the latest set of Nationwide house prices which rose by 0.5% month-on-month in June, above the consensus, 0.3%.

The year-over-year growth rate decreased to 2.0%, from 2.4% in May, but exceeded the consensus, 1.7%.

"The slowdown in year-over-year growth in Nationwide’s measure of house prices to a five-year low in June is another milestone in the housing market’s slowdown," says Samuel Tombs at Pantheon Macroecnomics.

On current trends Pantheon say the year-over-year rate will slow further, given that month-to-month gains in the first half of 2018 have averaged just 0.1%.

Note too that Rightmove’s measure of online asking price rose by just 1.7% year-over-year in June, while the balance of surveyors expecting prices to rise over the next three months was its lowest since the referendum in May, according to RICS.

"Slowing growth in prices largely reflects the impact of recent increases in mortgage rates on affordability. Tight supply, a healthy labour market and a continued lengthening of mortgage terms—30 year loans now are common—will help to prevent prices from falling outright. But it is inevitable that house prices will grow at a slower rate than households’ incomes during a period of rising mortgage rates," says Tombs.

There was no notable reaction in Sterling to the data.

New Zealand Dollar: RBNZ

The New Zealand Dollar is a currency to watch having been the worst-performing major currency over the past 24 hours. It fell throughout the European and much of the US session yesterday before stabilising.

However, the currency then went lower once more after the ANZ Survey of Business Opinion showed a fall in business confidence almost back to the cyclical lows (-39.0 down from -27.2; recent low was -39.3 in November 2017). These are the lowest levels since the 2008/09 global financial crisis.

Next moves in NZD will now depend on the tone of the upcoming RBNZ policy meeting, due at 22:00 B.S.T.

"The RBNZ meeting later today is expected to be a damp squib – with the central bank not scheduled to release any new projections this month. Equally though, the pretty flat NZD OIS curve – with a mere 40bps of tightening priced in over a two-year horizon – suggests that investors aren’t really expecting much action from the RBNZ anytime soon," says Viraj Patel at ING.

With no interest rate rises on the horizon, we would expect the NZD to find little by way of substantive support.

Patel says inflation dynamics remain a primary catalyst for officials to change course – with the focus here on the 2Q CPI report (16 July).

"Domestic drivers for the kiwi have been few and far between in 2018 – with the currency trading in line with global market forces. With stock markets wobbling, the bias for NZD/USD remains skewed to the downside (with one eye on the 0.68 level)," says Patel.

US Dollar: More Data

One of the drivers of the US Dollar's ongoing uptrend is the outperformance of the US economy relative to the rest of the world. Today, we get more data which should tell us whether we can expect this dynamic to extend.

US durable goods orders are out at 13:30 B.S.T and are forecast to show the second consecutive month of decline with a -0.9% reading forecast for the month-on-month release, but a 0.5% increase is forecast for the core component.

"Normally I only discuss the headline figure, which is the one that the FX market pays the most attention to, but this month I think the headline figure may be too distorted by aircraft orders to give a decent reading. The ex-transportation figure is expected to show the fourth consecutive month of growth, which is likely to be considered positive even if it does show some slowing (industrial production fell during the month). Despite the expected slowdown, the continued string of increases in this underlying figure suggests some strength in the US economy going forward. USD-positive," says Marshall Gittler, a foreign exchange analyst with ACLS Global.

At 15:00 US pending home sales data are released with markets looking for a realise of 1.1% on a month-on-month basis. The numbers will again plug into the whole economic outperformance narrative, with a beat on estimates likely to provide support to the USD.

Canadian Dollar: Poloz on the mic

The Canadian Dollar has been an underperformer of late with markets focussing heavily on future trade dynamics in general, and NAFTA in particular. The risks posed by Donald Trump's trade shakeout could well install caution in the Bank of Canada and convince them to delay raising interest rates, an outcome that would take away a key support for CAD.

With this in mind, Bank of Canada Governor Stephen Poloz will speak at 20:00 B.S.T and field questions from the media after the speech.

The title of his speech is, “Let Me Be Clear: From Transparency to Trust and Understanding.”

"It’s expected to be a high-level discussion on monetary policy rather than any prelude to the Bank of Canada’s decision two weeks later. Nonetheless it’s sure to be scrutinised closely for any clues as to what might happen at the meeting," says Gittler.

The odds of a hike at the meeting being displayed on money markets have turned to around 58%, having been an almost dead-certainty in previous weeks.

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