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Risk Appetite Returns as the Markets Shift Focus to the FED

Bob Mason
It’s all eyes on the FED later in the day as the Asian markets respond to news of Trump and Xi’s planned G20 Summit meeting.

Earlier in the Day:

It was a relatively busy day on the economic calendar through the Asian session. New Zealand 1 st quarter current account figures and Japan’s May trade figures provided direction early on.

Outside of the numbers, the markets continued to respond to the shift in sentiment towards trade. Through the session, the focus will also have been on today’s FED monetary policy decision and FOMC economic projections.

While few are expecting the FED to make a move today, a September rate is priced in.

For the Kiwi Dollar

The current account deficit narrowed from NZ$10.97bn to NZ$10.62bn, year-on-year. Quarter-on-quarter, the current account balance came in at NZ$0.68bn. Economists forecasted an NZ$0.58bn surplus. NZ Stats released the figures in the early hours.

The Kiwi Dollar moved from $0.65276 to $0.65313 upon release of the figures. At the time of writing, the Kiwi Dollar was flat at $0.6530.

For the Japanese Yen

Japan’s trade balance shifted from a ¥56.8bn surplus to a ¥967.1bn deficit in May. According to figures released by the  Ministry of Finance ,

  • Exports slid by 7.8%, year-on-year, in May, following on from a 2.4% fall in April. Economists had forecast a 7.7% fall.
    • Exports to China slid by 9.7%, while exports to the U.S increased by 3.3%.
    • Japan recorded a 9.5% slide in exports to Western Europe. Exports to Germany fell by 4.2%, with exports to the UK tumbling by 15.8%.
  • Imports fell by 1.5%, year-on-year, following a 6.4% rise in April.

The Japanese Yen moved from ¥108.584 to ¥108.548 against the greenback upon release of the figures. At the time of writing, the Japanese Yen was down 0.14% to ¥108.59 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was up by 0.03% to $0.6879.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead for the EUR.

German wholesale inflation figures are due out later this morning. Barring a material deviation from forecasts, the figures will likely have a muted impact on the EUR.

The markets will be focused on the all-important FED interest rate decision and economic projections. Following the last ECB press conference, the general consensus is that the ECB would follow the FED in any monetary policy easing moves.

ECB President Draghi is also scheduled to speak later today, which could have an impact on the EUR. Draghi’s comments on Tuesday may have been enough for the markets, however, which affirmed the ECB’s willingness to deliver more stimulus.

At the time of writing, the EUR was up by 0.03% to $1.1197.

For the Pound

It’s a busier day ahead on the economic calendar.

May inflation figures are due out of the UK later this morning.

While we would expect the markets to continue to be focused on the Tory Party leadership race, today’s inflation numbers will also influence.

With the BoE having talked of a need to take a more aggressive rate hike path to curb inflationary pressures, softer numbers would be negative for the Pound.

From the UK Parliament, the leadership race goes into its penultimate stage, where ballots over the course of today and tomorrow end with 2 front runners to go into Saturday’s vote.

The emergence of 2 pro-Brexiteers willing to allow Britain to leave the EU without a deal would be the worst-case scenario for the Pound.

At the time of writing, the Pound was up by 0.02% to $1.2560.

Across the Pond

It’s a big day for the Greenback.

While there are no material stats due out of the U.S, the FED will deliver its June monetary policy decision. Of greater significance will likely be the FOMC economic projections and press conference, however.

Assuming the FED leaves rates unchanged, economic growth and inflation forecasts and the projected policy path will be the key drivers from the projections.

In the March projections, the FED forecasted a 2019 median FED Funds Rate of 2.4%. At 1.75% and shifting to a dovish stance, it will ultimately boil down to whether the FFR forecast sits at 1.75%, 1.50% or even 1.25%.

With so many unknowns over the likely outcome of the extended U.S – China trade war, 1.5% may be as dovish as the FED will be willing to get.

Expect some chatter from the Oval Office to also influence on the day.

At the time of writing, the Dollar Spot Index was down by 0.03% to 97.617.

For the Loonie

May inflation figures are due out of Canada later this afternoon. While the focus will be on the FED, we can expect the Loonie to react to the figures.

It will boil down to the FED, however. A suggestion of a FED rate cut before the end of the year could even spur the Bank of Canada into action…

The Loonie was up by 0.01% to C$1.3376, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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