RBC Capital Markets

Day ahead: There are no key data due in Europe or North America today. There are a few central bank speakers (see table below), most notably the Fed’s Quarles and BoC Governor Lane. The BoK announces rates tonight (universally expected unchanged at 0.5%) and the Riksbank releases it half‐yearly Financial Stability Report (see SEK).

NZD: The RBNZ left the cash rate unchanged as universally expected butthe statement wassignificantly more hawkish. The RBNZ reintroduced cash rate forecasts and these show rates rising from mid‐2022. The Bank finally dropped its reference to rates falling again, if required, and made no reference to macroprudential policies to cool the overheating housing market.

Despite Governor Orr’s qualification that “these are highly conditional projections,” OIS are now close to pricing a full rate hike by mid‐2022 and two hikes by early 2023. As such, the FX focus may switch to looking for other candidates for shifts in forward guidance going forward and AUD is probably top of that list. Governor Orr appears before the select committee on finance and expenditure tonight. The April trade surplus was larger than expected at NZD388mn (consensus NZD33mn).

Citi

With much of South Asia including Singapore and India closed on account of local holidays, it was a very quiet session overnight though risk sentiment remains intact. Markets took Fed Vice Chair Clarida’s comments on tapering in its stride, and there is little to look forward to in the European morning session.

There were two standout performers overnight. NZD can thank a more hawkish than expected RBNZ. The central bank dropped reference to rate cuts, and projects rate hikes to begin the second half of next year. CitiFX Strategy maintained a constructive view on the currency going into the meeting.

CNH is the other star, dragging the East Asia currency complex higher. The pair has broken 6.40 and there seems to be limited pushback from officials to date. Otherwise, EURUSD is attempting a modest move higher, but we want to see a break of 1.23 for renewed topside momentum.

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