A lot has seemingly gone on in markets since I last had a chance to write, and yet if we’re to look at prices (certainly in FX) we’d be surprised to learn that anything had happened at all. Intraday volatility in the major pairs is perhaps the most telltale sign of activity, however this too is only really of concern if you’re punting on an intraday basis.
Otherwise the market continues its broader consolidation theme presently, or perhaps its campaign of fear and trepidation ahead of key events later this month with the obvious Federal Open Market Committee meeting and Brexit referendum casting some rather dubious shadows over the calendar.
Onto matters more recent, we had the Australian GDP print overnight which came in strong – very strong, actually, but mainly on a headline basis. The component parts weren’t bad, but before everyone gets excited about how well things are going down under – and claims the Reserve Bank of Australia was foolhardy for cutting rates – I urge objectivity and an understanding of the fact that inflation is sagging, price pressure is softening and the origins of said price pressures reflect an economy which continues its transitional phase.
An overnight note from ANZ and their rates team perhaps sums up the situation best;
"The 1.1% quarter/-over-quarter gain in Q1 GDP is a strong result and suggests that the economy is weathering the downturn in mining investment well. Solid consumer spending and strong growth in both housing construction and services exports are helping to drive the transition to non-mining growth. Inflation measures remain weak, although there are tentative signs that wages growth is bottoming out."
So the short version is that the AUD naturally saw some well-deserved upside on the data release and subsequently has also seen some more rationality coming into the OIS curve with respect to further RBA action in the near and medium terms.
If you’re wondering why the currency isn’t even stronger than the present 0.7250/70 level, then the only question I have for you is why should it be? It’s essentially in its sweet spot and remains calm. Given the nature of domestic data, the currency in the near term will only really be a second derivative of what the USD does or doesn’t do.
Today (and yesterday) have seen global PMI’s released which frankly haven’t revealed anything new, other than to only perhaps solidify the view that the broader global economy is struggling, but perhaps not as badly as it was previously.
The OECD has released revised forecasts for global growth and has thrown an obvious bone in Britain's direction, highlighting the potential danger to GDP should the Leave camp gets its way in a few weeks’ time.
On the topic of Britain and more to the point the GBP, another poll release yesterday showing a marginal gain for the leave campaign saw GBPUSD sold off rather hastily. The move was relatively ferocious, but only insofar as cable above 1.4700 area was unreasonable to begin with in the first place.
The road lower beyond 1.4500 was always going to be a tough one in the near term given how many had previously sold that level and/or around there some 10 days ago (and the propensity to cover those shorts at the first sign of a reprieve). Thus you have your soft underlying bid tone as they reclaim those positions.
Tomorrow sees the European Central Bank meet and it's likely do nothing other than to further jawbone the current situation. The currency resides close enough to recent ECB forecasts and price projection points and for all the worry out there about the FX channel, it is most certainly behaving itself and shouldn’t be a cause for concern... for now.
I feel obliged to mention the JPY and the announcement overnight about Japanese prime minister Shinzo Abe not moving on the domestic sales tax for another 2.5 years. There it is, consider it mentioned... the JPY has seen some strength as a result, but honestly nothing that should be of any real surprise to anyone.
As always, helmets on and good luck out there.
Sure, the JPY trade got a little crowded overnight... but such is life. Photo: iStock
— Edited by Michael McKenna
Ken Veksler is director of Accumen Management