Currencies to Look Past BOE, SNB as Brexit Fears Sink Sentiment
- Yen soars as status-quo BOJ rate decision unleashes risk-off capital flows
- “Brexit” fears sink Aussie, Canadian Dollars alongside Asian stock prices
- FX markets to look past SNB, BOE and US CPI as risk-off trade continues
The Japanese Yen moved sharply higher in overnight trade after the Bank of Japan opted not to expand monetary stimulus. The outcome was widely expected while the central bank’s policy statement struck a familiar tone, which makes the currency’s outsized reaction somewhat curious. Indeed, prices jumped nearly two percent to score their largest increase in nearly two months.
The dramatic rally may reflect pent-up demand for the anti-risk unit against a backdrop of deepening risk aversion across global financial markets. Indeed, the CVIX gauge of one-month implied FX volatility has surged to the highest level since 2011 as next week’s “Brexit” referendum nears. With that in mind, the passing of the BOJ rate decision may have simply cleared the air for capital inflows.
The sentiment-linked Australian and Canadian Dollars followed Asian stocks downward and the British Pound came under renewed selling pressure after a single session’s respite yesterday. Sterling’s slide mirrored that of Australian and Japanese equity benchmarks as well as US stock futures, underscoring the centrality of UK political risk as the source of investors’ dour mood.
The New Zealand Dollar managed to buck the trend elsewhere in the commodity FX space, with prices rising after upbeat first-quarter GDP data crossed the wires. The currency traded higher alongside front-end yields, signaling that the figures weighed against RBNZ interest rate cut speculation. Still, the priced-in probability of a 25bps cut at the central bank’s next meeting in August is relatively elevated at 54 percent.
Monetary policy announcements from the Swiss National Bank and the Bank of England headline the economic calendar in European trading hours. A pickup in Swiss inflation over recent months probably means that the SNB is unlikely to feel pressured into action. Meanwhile, the BOE will almost certainly save its ammunition for whatever is to follow next week’s referendum.
US CPI figures enter the spotlight later in the day, with the core year-on-year inflation rate expected to edge higher to 2.2 percent. The outcome may not offer much support to the US Dollar however considering its limited implications for near-term Fed monetary policy. Indeed, yesterday’s FOMC policy announcement was interpreted as broadly dovish by the markets despite an upgrade in officials’ price growth outlook.
On balance, this is likely to see sentiment trends remain at the forefront. S&P 500 futures are pointing sharply lower, hinting that the risk aversion is like to carry forward into the hours ahead. This bodes suggests that overnight FX trade dynamics are poised to continue.
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|22:45||NZD||GDP SA (QoQ) (1Q)||0.7%||0.5%||0.9%|
|22:45||NZD||GDP (YoY) (1Q)||2.8%||2.6%||2.3%|
|01:00||AUD||Consumer Inflation Expectation (JUN)||3.5%||-||3.2%|
|01:30||AUD||Employment Change (MAY)||19.9k||15.0k||10.6k|
|01:30||AUD||Unemployment Rate (MAY)||5.7%||5.7%||5.7%|
|01:30||AUD||Full Time Employment Change (MAY)||0.0k||-||-9.3k|
|01:30||AUD||Part Time Employment Change (MAY)||17.9k||-||19.1k|
|01:30||AUD||Participation Rate (MAY)||64.8%||64.9%||64.8%|
|01:30||AUD||New Motor Vehicle Sales (MoM) (MAY)||-1.1%||-||-2.8%|
|01:30||AUD||New Motor Vehicle Sales (YoY) (MAY)||1.7%||-||2.2%|
|01:30||AUD||RBA FX Transactions Government (MAY)||-916m||-||-991m|
|01:30||AUD||RBA FX Transactions Market (MAY)||909m||-||946m|
|01:30||AUD||RBA FX Transactions Other (MAY)||25m||-||68m|
|02:45||JPY||BOJ Annual Rise in Monetary Base||¥80t||¥80t||¥80t|
|02:45||JPY||BOJ Basic Balance Rate||0.1%||-||0.1%|
|02:45||JPY||BOJ Policy Rate||-0.1%||-0.1%||-0.1%|
|04:00||JPY||Tokyo Condominium Sales (YoY) (MAY)||-14.1%||-||-13.5%|
|05:45||CHF||SECO June 2016 Economic Forecasts||-||-||Low|
|07:00||CHF||KOF Institute Summer Economic Forecast||-||-||Low|
|07:30||CHF||SNB 3-Month Libor Lower Target Range||-1.25%||-1.25%||High|
|07:30||CHF||SNB 3-Month Libor Upper Target Range||-0.25%||-0.25%||High|
|07:30||CHF||SNB Sight Deposit Interest Rate||-0.75%||-0.75%||High|
|08:00||EUR||ECB Publishes Economic Bulletin||-||-||Low|
|08:30||GBP||Retail Sales Ex Auto Fuel (MoM) (MAY)||0.3%||1.5%||Medium|
|08:30||GBP||Retail Sales Ex Auto Fuel (YoY) (MAY)||3.8%||4.2%||Medium|
|08:30||GBP||Retail Sales Inc Auto Fuel (MoM) (MAY)||0.2%||1.3%||Medium|
|08:30||GBP||Retail Sales Inc Auto Fuel (YoY) (MAY)||3.9%||4.3%||Medium|
|09:00||EUR||Euro-Zone CPI (MoM) (MAY)||0.3%||0.0%||Medium|
|09:00||EUR||Euro-Zone CPI (YoY) (MAY F)||-0.1%||-0.1%||Medium|
|09:00||EUR||Euro-Zone CPI Core (YoY) (MAY F)||0.8%||0.8%||Medium|
|09:15||EUR||ECB's Nowotny Speaks at EU Commission Panel||-||-||Low|
|11:00||GBP||Bank of England Bank Rate (JUN 16)||0.5%||0.5%||High|
|11:00||GBP||BOE Asset Purchase Target (JUN)||375b||375b||High|
|CCY||Supp 3||Supp 2||Supp 1||Pivot Point||Res 1||Res 2||Res 3|
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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