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Calling the bluff of central banks

GBP – Potential PM’s, please stand up

The Pound began last week trending lower after economic data put a dampener on sentiment. The UK economy shrank by 0.4% in April—four times more than economists had forecast. However, labour market data showed a boost in wages and people in employment, which gave the Pound a boost against other currency majors. Meanwhile, 10 Conservative politicians were in the running to take over from Theresa May, but the first round of votes on Thursday saw Boris Johnson lead with the most votes and three candidates out of the race. The process should take around six weeks in total to determine who will attempt to navigate Brexit. In the week ahead, Wednesday could be an interesting day for GBP movement with the latest UK inflation figure released, a rise higher could put some pressure on the Bank of England (BoE) to reconsider its interest rate stance. Thursday will follow the Bank of England’s (BoE) June interest rate decision.

EUR – Bluffing isn’t working anymore

In the past, the European Central Bank has been known to jawbone—pressure a currency with words—the Euro lower. The ECB is now seen a bit like the boy who cried wolf, and markets are starting to wonder if President Mario Draghi is bluffing. Recent dovishness from the ECB Chief has been met with a muted reaction from the Euro, a frustrating development for policymakers who were hoping for a weaker currency to help boost exports and growth. There’s a slew of data out in the week ahead, including German and Eurozone sentiment indexes, the final May Eurozone inflation reading, the ECB’s economic bulletin, and Eurozone manufacturing and services data, all of which could influence the Euro. Markets will be closely assessing ecostats in a bid to determine if or when the central bank might take action.

USD – G-20 showdown ahead?

Last week, the US suspended tariffs on Mexican goods, but threatened a fresh round of tariffs on Chinese products if Chinese President Xi Jinping doesn’t meet for discussions at the upcoming G20 meeting in Osaka. While markets may be concerned about global growth amid so many geopolitical tensions, another focal point is US monetary policy. This week, the Federal Reserve will announce its June interest rate decision, followed by a press conference with Fed Chair Jerome Powell after the meeting. Comments regarding the bank’s plans for interest rates could create some US Dollar movement. General speculation about rate cuts has hampered the US Dollar’s strength of late, and any further indications from the central bank might catalyse further weakness.

AUD – How long can the RBA wait?

The Australian Dollar hit a two-week low against the US Dollar (AUD/USD) last week after the unemployment rate figure came in higher than forecast. The data encouraged speculation that the Reserve Bank of Australia (RBA) may look to cut interest rates to accommodate economic growth. The week ahead might provide some further clues too, with the RBA releasing its latest meeting minutes on Tuesday. Thursday might be another interesting event when RBA Governor Philip Lowe gives a speech in Adelaide, and his words could create AUD exchange rate movement, especially if markets think a rate cut could be on the way. Friday will finish the week with a look at how the services and manufacturing sectors are performing and could be moderately influential for the Aussie Dollar.

NZD – How is New Zealand’s economy performing?

This year, the New Zealand Dollar has been on the back foot against both the Pound and the US Dollar. This has been attributed to generally lower risk sentiment in the market because of geopolitical tensions, and a rate cut by the Reserve Bank of New Zealand (RBNZ). There’s potential for the Kiwi Dollar to recover some ground if economic data prints positively in the week ahead. The latest health check of the services sector will be released, as well as Consumer Confidence numbers. However, the main event will be in Wednesday’s Oceanic session when the latest growth figures for the first quarter are released. Any figures that fall below expectations could put more pressure on the NZD exchange rate. A dairy auction will also take place this week, and a lift in the value of New Zealand’s largest commodity could provide a boost for the Kiwi Dollar.

CAD – Is the economy picking up?

The Canadian Dollar had struck a three-month high against the US Dollar after the Canadian economy revealed a record-low unemployment rate. The data supported the Bank of Canada’s (BoC) outlook that the economy will begin to gain pace. However, last week saw the Loonie ebb lower after Trump dropped tariff plans against Mexico and the US Dollar began to climb. This week, investors will be looking at Wednesday’s Canadian inflation reading to see whether it’s remained at 2.0% in May as it had the previous month. Markets are still uncertain as to whether the Bank of Canada might need to make a rate cut this year, so economic data will be closely watched. Monday will reveal the latest Existing Home Sales numbers, while Friday will see the release of Retail Sales data; both ecostats could impact the Loonie exchange rate moderately.