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Commodity currencies benefit from Asian stock market rebound but USD remains weak

Published: Monday 19 February 2018

  • More Brexit frustrations…
  • Central banks all release announcements this week
  • Markets pricing in a US interest rate hike
By Killian Greenwood

Most commodity currencies are stronger in this morning’s Asian session, following the rebound in Asian stocks. Meanwhile, there is weakness in the US Dollar, Japanese Yen and Swiss Franc. Most currency pairs are, however, still in Friday's range. The economic calendar is light today due to the President’s Day bank holiday in the US. Trading will probably be subdued.

More Brexit frustrations…

European Parliament's Guy Verhofstadt said in a BBC interview that the EU was "not against a transition period" regarding Brexit. And he added that "it's normal that in a transition, you simply continue the existing rules and the existing policies." However, it would be unacceptable to violate the freedom of movement of people principle during the transition. And that would be "penalising citizens" of the EU. Verhofstadt also warned if the UK parliament votes down Prime Minister Theresa May's Brexit deal, it could be a "crisis in British politics". And that might lead to a re-election, a new government and a new Brexit position. And in that case, there will be risk of Brexit "without any arrangement" which would of course be the worst outcome for both sides. For now, the Pound remains resilient, as the market anticipates interest rate hikes from the UK, however, any further Brexit uncertainty and sterling could falter.

Central banks all release announcements this week

The Reserve Bank of Australia (RBA), Federal Open Market Committee (FOMC) and European Central Bank (ECB) will release their minutes this week. The RBA minutes will likely echo the neutral stance of its top officials. Governor Lowe is clear with his messages; the RBA won't follow other global central banks in tightening monetary policy. A key reason is that the RBA didn't cut interest rates as deeply as others like the Federal Reserve in the US and the ECB. Spare capacity in the economy is expected to keep wage growth subdued.

Markets pricing in a US interest rate hike

In the US, the FOMC minutes are likely to reiterate the case for a March interest rate hike. Fed fund futures are pricing in over 80% chance of that already. A higher than expected inflation reading in January and solid wage growth is keeping the case for three hikes alive. Indeed, markets are already starting to anticipate as many as four rate hikes in 2018. The January FOMC minutes are not expected to alter such expectations.

Calls for Europe’s central bank to provide more economic policy guidance

The ECB January minutes will be watched closely. There are calls from officials for the central bank to alter its communications. The purpose is to send a clear message that the asset purchase programme is coming to an end after September. But so far, the ECB hasn’t changed much in its forward guidance yet. Markets will watch the discussions closely for and look for any change in communications.
“May your clothes be comfy, your coffee be strong, and your Monday short.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
USD All Day US: Bank Holiday    
EUR All Day EU: Eurogroup Meetings    
NZD 21:45 New Zealand: Producer Price Index Input 1.0% 0.3%
NZD 21:45 New Zealand: Producer Price Index Output 1.0% 0.4%

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