AUD, NZD & CAD:
No surprise for the CAD to see the biggest net long positioning change once again among the majors after the BOC’s recent hawkish tilt. The recent comments from the BOC about the CAD’s strength are a reason for us to pay attention to current levels in USDCAD.
Arguably a lot of the positives for the CAD is already reflected in the price, and the market will want to see more and more positive surprises to justify further moves lower so keep that in mind.
For the AUD, the focus in the week ahead will remain on commodities, more specifically Iron Ore. China has become uncomfortable about the rise in commodity prices and is stepping in to try and curb the rise. After solid moves in recent months for Iron Ore some pullback is to be expected, but will be an important negative consideration for the AUD.
For the NZD, this week we do have the upcoming RBNZ policy meeting. Going into the meeting, markets are expecting an upgrade to the economic outlook from the bank, but most are of the opinion that it’s too soon for the bank to change policy direction, at least verbally (bond purchases has been slowing recently).
If the bank does bring forward rate hike expectations like that of the BOC, which is a slim possibility, that could of course create some upside volatility for the NZD.
JPY, CHF & USD:
US 10-Year Yields and US Real Yields remain the biggest focus for the USD and the JPY. As the growth and inflation outlook remains positive for the US, the path of least resistance for yields remains titled higher which should keep the JPY lower apart from possible short-term risk off flows of course.
For the USD, as we explained last week, the focus isn’t just on nominal bond yields but also on real yields, which has continued to remain very close to cycle lows as nominal yields have moved largely rangebound while inflation expectations have trended higher.
Any change in real yields will be a very important consideration for the Dollar, as well as any further comments from FED members regarding tapering deliberations.
GBP:
The bullish bias for Sterling remains intact. The economic data last week (Jobs, CPI, Retail Sales and PMI’s) once again confirmed the market’s expectations of a faster and better-than-expected economic rebound in the UK.
The wild card to track in the week ahead is the virus situation as new cases of the Indian variant has been a concern. PM Johnson has warned that the variant could pose a challenge to their reopening plans.
For now, everything seems under control, but this is a development to keep close track of.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour and as market participants look towards a fast economic rebound once the vaccination efforts allow the EU to lift lockdown restrictions.
If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information on the vaccine and data front before we change our mind.
No surprise for the CAD to see the biggest net long positioning change once again among the majors after the BOC’s recent hawkish tilt. The recent comments from the BOC about the CAD’s strength are a reason for us to pay attention to current levels in USDCAD.
Arguably a lot of the positives for the CAD is already reflected in the price, and the market will want to see more and more positive surprises to justify further moves lower so keep that in mind.
For the AUD, the focus in the week ahead will remain on commodities, more specifically Iron Ore. China has become uncomfortable about the rise in commodity prices and is stepping in to try and curb the rise. After solid moves in recent months for Iron Ore some pullback is to be expected, but will be an important negative consideration for the AUD.
For the NZD, this week we do have the upcoming RBNZ policy meeting. Going into the meeting, markets are expecting an upgrade to the economic outlook from the bank, but most are of the opinion that it’s too soon for the bank to change policy direction, at least verbally (bond purchases has been slowing recently).
If the bank does bring forward rate hike expectations like that of the BOC, which is a slim possibility, that could of course create some upside volatility for the NZD.
JPY, CHF & USD:
US 10-Year Yields and US Real Yields remain the biggest focus for the USD and the JPY. As the growth and inflation outlook remains positive for the US, the path of least resistance for yields remains titled higher which should keep the JPY lower apart from possible short-term risk off flows of course.
For the USD, as we explained last week, the focus isn’t just on nominal bond yields but also on real yields, which has continued to remain very close to cycle lows as nominal yields have moved largely rangebound while inflation expectations have trended higher.
Any change in real yields will be a very important consideration for the Dollar, as well as any further comments from FED members regarding tapering deliberations.
GBP:
The bullish bias for Sterling remains intact. The economic data last week (Jobs, CPI, Retail Sales and PMI’s) once again confirmed the market’s expectations of a faster and better-than-expected economic rebound in the UK.
The wild card to track in the week ahead is the virus situation as new cases of the Indian variant has been a concern. PM Johnson has warned that the variant could pose a challenge to their reopening plans.
For now, everything seems under control, but this is a development to keep close track of.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour and as market participants look towards a fast economic rebound once the vaccination efforts allow the EU to lift lockdown restrictions.
If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information on the vaccine and data front before we change our mind.