The USD edges higher, oil prices extend losses, equity markets are down, and US yields rise on renewed inflation fears. Currency markets are steady ahead of today's FOMC minutes, while most investors have dialed back expectations of US interest rate cuts in 2024. Tuesday, Fed's Collins, Waller, and Mester emphasized the need for more data to cut interest rates. The Reserve Bank of New Zealand kept its interest rates unchanged today and signaled policy will stay tight for longer. In the UK, inflation slowed less than expected in April, which tempered expectations of a Bank of England rate cut in Q2. Equity markets are slightly down after the S&P 500 hit another record high on Tuesday, ahead of bellwether Nvidia Corp earnings report after the market close. Elsewhere, oil and gold prices eased off recent record highs, while Bitcoin extended gains through 70k. Today's focus is US Existing Home sales, FOMC Minutes, and speeches from Fed Goolsbee, BoE Breeden & RBNZ Governor Orr, which will help provide intraday direction to currency markets.
In other news. US announces details on higher China tariffs, some to start Aug. 1st. Israel recalls envoys as Spain, Ireland, and Norway commit to recognize the Palestine state. Biden administration signals it will support the push to hit the ICC with sanctions. The EU trade deficit with China shrinks to its lowest level since 2021. Iowa tornado kills 'multiple' people in small town reduced to rubble. UK inflation falls less than expected, dashing June rate cut hopes. Australia reports its first human avian flu infection. Russian defense ministry proposes revisiting the Baltic Sea border. Spain escalates diplomatic rebuke to Argentina's Milei. Target posts weak results as discretionary spending remains pressured.
In currency markets. The USD edges higher, the Russian Rouble firms have reached their strongest level since January, and China's yuan hovers near 3-week lows. From ongoing inflation fears, the NZD & GBP firm is in early trading, expecting its central banks to keep rates on hold for longer. CNY & Asian currencies slip by 0.1% on average vs USD. Trading currencies are mixed, with ZAR weakening by 0.4%, SEK, NOK, JPY & CHF down 0.2%, AUD & IDR are flat, MXN firms by 0.1%, and NZD strengthening by 0.5% vs. USD.
In commodity markets. Oil prices weakened by 0.9%, Natural Gas & Copper prices tumbled by 1.7%, Gold prices slipped by 0.2%, Silver prices eased by 0.35%, Wheat prices rallied by 1.7%, and Soybean prices firmed by 0.3%
CAD holds at one-week lows and is heading into the US FOMC minutes today. The loonie is expected to remain on the back foot vs the USD as investors increasingly expect the Bank of Canada to cut its domestic interest rates as early as June, while many expect the Fed to keep interest rates on hold in 2024. Investors see a 56% chance that the BoC will begin cutting rates at the next policy decision on June 5th, up from 40%. The weakness in oil prices also puts increasing pressure on the CAD, which could combine to see the CAD retest at 1.3775 again heading into the BoC interest rate decision in June.
EURCAD slips from its five-month highs as markets consolidate slightly heading into the US FOMC minutes. Heading into the BoC interest rate decision in June, the CAD looks vulnerable to retesting 2023 highs of 1.5000.
EUR continues to tread water, straddling 1.0850 ahead of the FOMC minutes. Domestically, the lack of high-tier data releases leaves the euro vulnerable to central bankers' comments to help provide trading direction. The Feds FOMC minutes will show discussions among the policymakers that took place before the April CPI report. The minutes are unlikely to give any critical clues regarding the rate outlook, which could pressure the Euro if investors consider the minutes more hawkish than dovish.
GBPEUR extends gains towards a near two-month highs after UK inflation data decreased less than expected, increasing the prospect that the BoE will keep rates on hold for longer.
GBP steadies below 1.2750 ahead of the Fed minutes. The pound quickly tested 1.2750 after the UK annual CPI data came in at 2.3% in April, down from 3.2% in March, but higher than the 2.1% forecasted. We also saw UK PPI input rise to 0.6% vs -0.2% and PPI output at 1.1% vs 0.7%. Following today's CPI neared the BoE's target in April but didn't slow as much as expected, which cast doubt that the BoE will cut interest rates in June. We expect the pound to remain under pressure vs. USD, while we expect the pound to continue to strengthen vs its G7 peers. Intraday US minutes will help drive intraday direction.
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