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The risk-on vibes and rallying commodities meant that the higher-yielding Aussie and Kiwi were both in demand. However, the Aussie was able to win out against the Kiwi, likely because of RBA Guv’nah Lowe’s hawkish forward guidance.

  • Swiss trade balance: CHF 2.33B vs. CHF 3.21B expected, CHF 2.92B previous
  • U.K. public sector net borrowing: £7.5B vs. £6.5B expected, £4.4B previous
  • Fed Head Yellen will be speaking later
  • Dairy auction currently underway

Major Events/Reports

RBA’s Lowe speaks

RBA Guv’nah Philip Lowe gave a rather long speech near the start of the morning London session.

Most of what Lowe said wasn’t really new or market-moving. However, the conclusion of his speech was really interesting since he said the following (emphasis mine):

“So, in summary, over the past year or so there has been progress in moving the economy closer to full employment and in having inflation return to the 2 to 3 per cent range. Both of these are positive developments and suggest a more familiar normal is still in sight. Progress on these fronts has been made while also containing the build-up of risks in household balance sheets.”

“We still, though, remain short of full employment, and inflation is expected to pick up only gradually and remain below average for some time yet. This means that a continuation of accommodative monetary policy is appropriate. If the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down. But the continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment in monetary policy. We will, of course, continue to keep that judgement under review.”

Lowe gave a lot of caveats and he even clearly stated that there’s no “strong case for a near-term adjustment in monetary policy,” but his statement about the “next move” being “up, rather than down” is still hawkish.

But then again, the RBA did hint at this hawkish bias two weeks ago when it noted in the RBA’s Statement on Monetary Policy that “The cash rate is assumed to move broadly in line with market pricing.” And market pricing points to a rate hike by next year.

However, the RBA was quick to say back then that:

“This does not represent a commitment by the Reserve Bank Board to any particular path for policy.”

BOE members testify

Four BOE MPC members testified before the Treasury Select Committee earlier (and are still testifying as I write).

Up first was Jon Cunliffe and he said that while he voted against the BOE’s recent rate hike, he does share the “overall framework” of the other BOE members.

However, Cunliffe highlighted the weak domestic inflation in the U.K., particularly the poor wage growth despite the pound’s weakness, before saying that:

“These make it possible to wait before tightening policy until there is clear evidence that pay growth is responding to the level of unemployment in line with our forecast.”

Gertjan Vlieghe was the next to get grilled and he said that he voted for a rate hike partly because employers in the U.K. have been having difficulties when it comes to staffing since employees quickly switch jobs if other companies offer higher pay.

Also, Vieghe reasoned that:

“If you wait until all the signs are lined up to support the decision then you will almost always be too late.”

Michael Saunders, meanwhile, said that:

“I consider it quite possible that the equilibrium jobless rate is slightly below our 4.5 percent estimate, but probably only slightly.”

Saunders then added that it would only be a matter of time before the tighter labor market would result in higher inflation, which is why he voted for a rate hike.

However, Saunders also sounded somewhat neutral when he said that monetary policy will depend on how the U.K. economy evolves.

As for Ian McCafferty, he basically agreed with Saunders, which is not surprising since the Saunders and McCafferty have been hinting at their hawkish bias long before the BOE actually hiked.

However, McCafferty also agreed with Saunders’ more neutral-sounding tone about monetary policy being dependent on how the U.K. economy progresses.

Commodities broadly higher

After getting whupped yesterday, commodities staged a broad-based rally during today’s morning London session.

Market analysts couldn’t really pinpoint the reason for the commodities, however. Also, we can’t really point to Greenback weakness because the U.S. dollar index was up by 0.03% to 94.03 for the day when the session ended.

Base metals did well.

  • Copper was up by 0.58% to $3.104 per pound
  • Nickel was up by 0.56% to $11,735.00 per dry metric ton

Oil benchmarks raked in gains.

  • U.S. WTI crude oil was up by 0.30% to $56.59 per barrel
  • Brent crude oil was up by 0.31% to $62.41 per barrel

Precious metals were in positive territory, despite the risk-on vibes.

  • Gold was up by 0.36% to $1,279.89 per troy ounce
  • Silver was up by 0.77% to $16.971 per troy ounce

Another risk-friendly day in Europe

The European equities market had a repeat performance of yesterday’s morning London session since the major European equity indices opened softer but later clawed their way higher (and then some).

And according to market analysts, the risk-friendly environment in Europe was due market players just shrugging off political troubles in Germany and focusing on the overall strength of the Euro Zone economy.

  • The pan-European FTSEurofirst 300 was up by 0.57% to 1,527.17
  • Germany’s DAX was up by 0.85% to 13,170.00
  • The blue-chip Euro Stoxx 50 was up by 0.63% to 3,585.50

Even U.S. equity futures got a lift from the risk-on vibes in Europe.

  • S&P 500 futures were up by 0.29% to 2,589.50
  • Nasdaq futures were up by 0.35% to 6,338.38

Major Market Mover(s):

AUD & NZD

The risk-on vibes and commodities rally gave both the Aussie and the Kiwi a boost. But in the end, there can be only one champ. And that happened to be the Aussie, likely because RBA Guv’nah Lowe’s forward guidance was rather hawkish in contrast to the RBA’s meeting minutes from earlier. Although it’s also possible that Kiwi bulls were just wary of positioning too heavily since a dairy auction is currently underway.

AUD/USD was up by 30 pips (+0.40%) to 0.7572, AUD/JPY was up by 33 pips (+0.40%) to 85.24, AUD/CAD was up by 34 pips (+0.36%) to 0.9697

NZD/USD was up by 17 pips (+0.25%) to 0.6819, NZD/JPY was up by 21 pips (+0.27%) to 76.77, NZD/CAD was up by 19 pips (+0.22%) to 0.8733

EUR

The euro was the worst-performing currency of the morning London session. There weren’t really any major catalysts, but it’s probable that worries related to German politics may still be dampening demand for the euro.

EUR/USD was down by 12 pips (-0.18%) to 1.1715, EUR/AUD was down by 86 pips (-0.56%) to 1.5473, EUR/NZD was down by 72 pips (-0.42%) to 1.7179

CHF

The risk-on vibes may have been good for the higher-yielding Aussie and Kiwi. However, the same risk-on vibes were pretty toxic for the safe-haven, particularly the Swissy, so much so that the Swissy ended up as the second worst-performing currency of the morning London session.

USD/CHF was up by 12 pips (+0.13%) to 0.9936, AUD/CHF was up by 26 pips (+0.35%) to 0.7523, NZD/CHF was up by 15 pips (+0.23%) to 0.6776

Watch Out For:

  • 1:30 pm GMT: Canadian wholesales sales (0.6% expected, 0.5% previous)
  • 3:00 pm GMT: U.S. existing home sales (5.40M expected, 5.39M previous)
  • 9:45 pm GMT: Visitor arrivals in New Zealand (0.3% previous)
  • 11:00 pm GMT: Fed Head Yellen will participate in a panel discussion
  • Dairy auction currently underway (GDT price index: -3.5% previous); auction usually ends at around 2:00 pm GMT