NZDCAD RANGED BETWEEN 0.8602 AND 0.8386

NZDCAD

The NZD/USD is in a freefall. The catalysts behind the selling pressure are falling dairy prices, expectations of a rate cut by the Reserve Bank of New Zealand, and the possibility of a rate hike by the U.S. Federal Reserve.

The 40 percent decline in dairy prices since the start of March has traders wondering how much impact this would have on the country’s GDP as well as on the income of farmers. It has also has investors thinking about the strong possibility the RBNZ will decrease rates later this week.

Last week, Fed Chair Janet Yellen signaled before members of Congress that the U.S. Federal Reserve is on course for a possible rate hike in September. She cited improving labor conditions as one reason for the move. She also added that the crisis in Greece and the turmoil in China should not affect the central bank’s decision.

With the RBNZ considering a possible rate cut and the Fed a rate hike, the interest rate differential favors the Fed, making the U.S. Dollar a more favorable investment. The downtrend is likely to continue this week, but investors may use Wednesday’s RBNZ Rate Statement as an off.

Because of the sell-off, the RBNZ statement may actually turn into a sell the rumor, buy the fact situation.

BOC Cut Overnight Rate to 0.5%, Downgraded Growth Forecast "Significantly"

The Bank of Canada reduced the overnight rate by -25 bps to 0.5%, the lowest level since June 2010. It noted that headline inflation remained weak and was mainly pressured by low energy prices. On economic developments, the central bank acknowledged that the slowdown in growth in 1Q15 was driven by a scaling back in energy investment and weaker than expected non-energy investment. Yet, it expected growth would remain weak in the second quarter. As such, the BOC revised "significantly downgraded" its GDP growth forecasts. We expect the rate cut would provide only limited addition stimulus to the economy.

BOC noted that weakness in global economic developments since the last meeting has negatively affected Canada's economy. Policymakers lowered the GDP growth forecast for 2015, to +1.1% from +1.9% estimated earlier in the year, based on three reasons:

First, Canadian oil producers have lowered their long-term outlook for global oil prices, and have cut their plans for investment spending significantly more than previously announced.

Second, China's economy is undergoing a structural transition to slower, domestic-driven growth, which is reducing Canadian exports of a range of other commodities

Third, Canada's non-resource exports have also faltered in recent months. While this is partly due to the first-quarter setback in the U.S. economy, it's still a puzzle that merits further study.

On inflation, the BOC indicated that the softness of headline inflation, which had been hovering around the lower bound of the +1% to +3% target over the past several months, was largely due to low energy prices. Core inflation, which had moved slightly above +2% "because a decline in the dollar is raising the prices of imports", would drop to +1.5% to +1.7% of those factors were eliminated. The central bank stressed that all these measures of inflation would "converge on the underlying trend", should the "temporary effects dissipate".

In the BOC Business Outlook Survey released earlier this month, it pointed to "a diverging outlook across regions". The improvement in the economic developments was driven by "strengthening US demand". However, "weak oil prices" continued to "significantly dampen economic perspectives" in certain sectors and regions. On the job market, the survey suggested that "the balances of opinion on investment and hiring intentions are still weak, since firms tied to the energy sector plan to cut back on their investment and hiring". Yet, the labor gap, overall, was less extreme than it was a year ago, but the number of firms "still reporting labor shortages that are restricting their ability to meet demand remains low". Against the backdrop of strong full-time job growth and better outlook for future sales, this rate cut would provide very limited addition stimulus to the economy. We expect the BOC to keep its powder for the rest of the year. It would, however, maintained a rather dovish stance until mid-2016.

BOC noted that weakness in global economic developments

BOC Cut Overnight Rate to 0.5%, Downgraded Growth Forecast "Significantly"

The Bank of Canada reduced the overnight rate by -25 bps to 0.5%, the lowest level since June 2010. It noted that headline inflation remained weak and was mainly pressured by low energy prices. On economic developments, the central bank acknowledged that the slowdown in growth in 1Q15 was driven by a scaling back in energy investment and weaker than expected non-energy investment. Yet, it expected growth would remain weak in the second quarter. As such, the BOC revised "significantly downgraded" its GDP growth forecasts. We expect the rate cut would provide only limited addition stimulus to the economy.

BOC noted that weakness in global economic developments since the last meeting has negatively affected Canada's economy. Policymakers lowered the GDP growth forecast for 2015, to +1.1% from +1.9% estimated earlier in the year, based on three reasons:

First, Canadian oil producers have lowered their long-term outlook for global oil prices, and have cut their plans for investment spending significantly more than previously announced.

Second, China's economy is undergoing a structural transition to slower, domestic-driven growth, which is reducing Canadian exports of a range of other commodities

Third, Canada's non-resource exports have also faltered in recent months. While this is partly due to the first-quarter setback in the U.S. economy, it's still a puzzle that merits further study.

On inflation, the BOC indicated that the softness of headline inflation, which had been hovering around the lower bound of the +1% to +3% target over the past several months, was largely due to low energy prices. Core inflation, which had moved slightly above +2% "because a decline in the dollar is raising the prices of imports", would drop to +1.5% to +1.7% of those factors were eliminated. The central bank stressed that all these measures of inflation would "converge on the underlying trend", should the "temporary effects dissipate".

In the BOC Business Outlook Survey released earlier this month, it pointed to "a diverging outlook across regions". The improvement in the economic developments was driven by "strengthening US demand". However, "weak oil prices" continued to "significantly dampen economic perspectives" in certain sectors and regions. On the job market, the survey suggested that "the balances of opinion on investment and hiring intentions are still weak, since firms tied to the energy sector plan to cut back on their investment and hiring". Yet, the labor gap, overall, was less extreme than it was a year ago, but the number of firms "still reporting labor shortages that are restricting their ability to meet demand remains low". Against the backdrop of strong full-time job growth and better outlook for future sales, this rate cut would provide very limited addition stimulus to the economy. We expect the BOC to keep its powder for the rest of the year. It would, however, maintained a rather dovish stance until mid-2016.

ACTIONFOREX

Weekly Currency GBPUSD,USDCHF,AUDJPY,EURJPY

GBPUSD

GBPUSD

The GBP/USD finished lower on Thursday as long investors continued to take profits following yesterday’s bearish U.K. unemployment report. The report, which took investors by surprised, showed that unemployment in the U.K. actually increased. This was the first rise in the U.K. Claimant count since 2012. The claimant count rose to 7.0K from -8.9K. The unemployment rate increased to 5.6% from 5.5%. The average wages report also missed the estimate. Traders were pricing in a reading of 3.3%. The actual.

USDCHF

USDCHF

USDCHF rally was likely triggered by hawkish comments from Fed Chair Janet Yellen. During two days of testimony before Congress, Yellen signaled that the central bank remains on track for the first rate hike in almost a decade. 

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy,” she said. 

Once again the interest rate differential between the U.S. and Switzerland is making the U.S. Dollar a more attractive investment. Unless some unexpected news comes along to derail the U.S. economy, the Fed could begin raising interest rates as early as September and perhaps a second time in December. 

Yellen also added that the crisis in Greece and the stock market crash in China have had no effect on the Fed’s plans. Instead, the central bank’s main focus has been on the improving labor market. 

Recent data showed that the Swiss National Bank had to step into the currency market as the Greek crisis deepened last month. Although it did not intervene as intensively as it did in 2012, it is likely to remain a player because of the instability in the region. The uncertainty over Greece’s financial future remains an issue because it could have a negative effect on Switzerland’s export-reliant economy. 

Upward pressure is expected to continue to support the USD/CHF because of strengthening expectations for a Fed rate hike and the possibility that the SNB will have to intervene once again especially after Greek banks open on Monday after being closed for three weeks.

EURJPY

EUR: Path Clear for Sell-Off. Bearish.

With uncertainty regarding Greece diminished, we believe that investors will feel more comfortable reinitiating EUR shorts, as evidenced by the latest break in EURUSD below the 100 DMA. Draghi has reiterated that the ECB stands ready to act if needed, which could be enough to weigh on EUR, particularly if it supports equities, given the inverse relationship between European stocks and EUR.

AUDJPY

JPY: Still Look for Strength. Bullish.

We expect JPY weakness to reverse, and maintain our bullish view, despite the recent pick-up in equity markets. Recent data from Japanese pension funds point to the reallocation process being largely complete, suggesting that foreign outflows from Japan could slow. The latest developments in Japanese politics pose a risk to Abenomics, which could be a near-term source of support for JPY, though we believe that in the longer term this could be more concerning.

Write up taken from 

actionforex

fxempire

efxnews