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Pound May Rise as BOE Inflation Report Rekindles Rate Hike Bets

Pound May Rise as BOE Inflation Report Rekindles Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Pound May Rise as Upbeat BOE Inflation Report Fuels Rate Hike Bets
  • NZ Dollar Gains as RBNZ Warns on Loose Monetary Policy Dangers
  • Euro Unlikely to Find Follow-Through in First-Quarter GDP Report

The New Zealand Dollar outperformed in overnight trade after the release of the RBNZ Financial Stability Report (FSR). The document identified the frothy Auckland housing market, low prices for dairy exports and loose global financial conditions as risk factors. On the final point, RBNZ Governor Wheeler said low rates encourage investors into riskier assets and warned that the prices of financial and real assets are becoming increasingly overextended, which may bring on a disorderly unwind ahead. The markets seemed most taken with this part FSR, seemingly interpreting it as a reason to pare back RBNZ rate cut bets. Indeed, the Kiwi rallied alongside a jump in three-month borrowing costs.

The Australian Dollar likewise advanced as prices continued to react to the shift away from harsh austerity in the FY2016 federal budget unveiled yesterday. While the projected deficit registered at A$35.1 billion, which turned out to be a bit narrower than the A$40 billion expected by economists, it still marked a looser posture compared with the A$31.2 billion shortfall projected in December. As we argued previously, the markets probably interpreted a pro-growth turn in fiscal policy as reducing the future need for aggressive further easing on the monetary side of the equation. Still, the markets see a 77 percent probability of another 25bps interest rate cut at June’s RBA meeting.

Looking ahead, the preliminary set of first-quarter Eurozone GDP figures seems unlikely to generate lasting follow-through for the Euro considering the figures’ limited impact on the near-term ECB policy trajectory. Indeed, the central bank looks to be essentially on auto-pilot as it continues to implement its €60/billion a month QE effort. Meanwhile, April’s UK Jobless Claims data is likely to play second fiddle to the unveiling of the quarterly Bank of England Inflation Report. The document has become the premier vehicle for communicating the central bank’s intentions to the markets. The British Pound may rise if firming performance in the Eurozone – the UK’s top export market – inspires upbeat rhetoric and rekindles bets that Governor Mark Carney and company may yet raise rates in 2015.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:05

NZD

RBNZ's Wheeler News Conf on FSR

-

-

-

22:45

NZD

Food Prices (MoM) (APR)

-0.3%

-

0.1%

23:50

JPY

BoP Current Account Balance (MAR)

¥2795.3B

¥2061.3B

¥1440.1B

23:50

JPY

BoP Current Account Adjusted (MAR)

¥2066.3B

¥1358.0B

¥606.1B

23:50

JPY

Trade Balance BoP Basis (MAR)

¥671.4B

¥527.5B

-¥143.1B

23:50

JPY

Bank Lending Incl Trusts (YoY) (APR)

2.6%

2.7%

2.6%

23:50

JPY

Bank Lending Ex-Trusts (YoY) (APR)

2.7%

2.7%

2.7%

1:30

AUD

Wage Price Index (QoQ) (1Q)

0.5%

0.6%

0.6%

1:30

AUD

Wage Price Index (YoY) (1Q)

2.3%

2.4%

2.5%

4:30

JPY

Bankruptcies (YoY) (APR)

-18.2%

-

5.5%

5:00

JPY

Eco Watchers Survey Current (APR)

53.6

52.3

52.2

5:00

JPY

Eco Watchers Survey Outlook (APR)

54.2

53.3

53.4

5:30

CNY

Retail Sales (YoY) (APR)

10.0%

10.4%

10.2%

5:30

CNY

Retail Sales YTD (YoY) (APR)

10.4%

10.5%

10.6%

5:30

CNY

Industrial Production (YoY) (APR)

5.9%

6.0%

5.6%

5:30

CNY

Industrial Production YTD (YoY) (APR)

6.2%

6.3%

6.4%

5:30

CNY

Fixed Assets Ex Rural YTD (YoY) (APR)

12.0%

13.5%

13.5%

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:00

EUR

German Wholesale Price Index (MoM) (APR)

0.4% (A)

1.0%

Low

6:00

EUR

German Wholesale Price Index (YoY) (APR)

-0.9% (A)

-1.1%

Low

6:00

EUR

German GDP SA (QoQ) (1Q P)

0.3% (A)

0.7%

Medium

6:00

EUR

German GDP WDA (YoY) (1Q P)

1.0% (A)

1.4%

Medium

6:00

EUR

German GDP NSA (YoY) (1Q P)

1.1% (A)

1.6%

Medium

6:00

EUR

German CPI (MoM) (APR F)

0.0% (A)

-0.1%

Medium

6:00

EUR

German CPI (YoY) (APR F)

0.5% (A)

0.4%

Medium

6:00

EUR

German HCPI (MoM) (APR F)

-0.1% (A)

-0.1%

Medium

6:00

EUR

German HCPI (YoY) (APR F)

0.3% (A)

0.3%

Medium

8:30

GBP

Claimant Count Rate (APR)

2.2%

2.3%

Medium

8:30

GBP

Jobless Claims Change (APR)

-20.0K

-20.7K

Medium

8:30

GBP

Avg Weekly Earnings (3M/Y) (MAR)

1.7%

1.7%

Low

8:30

GBP

Weekly Earnings ex Bonus (3M/Y) (MAR)

2.1%

1.8%

Low

8:30

GBP

ILO Unemployment Rate 3Mths (MAR)

5.5%

5.6%

Medium

8:30

GBP

Employment Change 3M/3M (MAR)

225K

248K

Low

9:00

EUR

Eurozone Industrial Production (MoM) (MAR)

0.0%

1.1%

Low

9:00

EUR

Eurozone Industrial Production (YoY) (MAR)

1.9%

1.6%

Low

9:00

EUR

Eurozone GDP SA (QoQ) (1Q A)

0.4%

0.3%

Medium

9:00

EUR

Eurozone GDP SA (YoY) (1Q A)

1.0%

0.9%

Medium

9:30

GBP

BOE Quarterly Inflation Report

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0921

1.1065

1.1139

1.1209

1.1283

1.1353

1.1497

GBPUSD

1.5338

1.5492

1.5582

1.5646

1.5736

1.5800

1.5954

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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