News & analysis

CAD

The loonie spent another day in the green against the dollar as it is riding on the coattails of slowly improving dynamics in the oil market and an improvement in risk sentiment. Today, WTI rose back above $34 a barrel while Brent is trading above $36 a barrel after Russia published a promising forecast on the market rebalancing. Energy Minister Alexander Novak expects the market to balance in June or July and said that global curbs have so far exceeded those agreed by the OPEC+ alliance. Comments from Bank of Canada Governor Stephen Poloz following his speech to the University of Alberta yesterday add to the improved general risk sentiment. Poloz stated that the best case scenario laid out in the monetary policy report is still the most likely scenario for him, while also acknowledging that the economy will need “significant monetary stimulus in the rebuilding stage”. Today is a light day on the economic calendar for Canada and any developments in oil markets will be closely watched. Later in the evening at 22:00 BST, BoC’s Poloz will deliver testimony in the Parliament’s Standing Senate Committee on National Finance, followed by a Q&A with senators.

USD

The dollar is trading in the red against all of its G10 peers this morning except the Japanese yen, as the upbeat market mood is shifting attention away from safe haven currencies. A slowdown of new virus cases in the US supports the market mood, but whether this increased risk sentiment is justified or sustainable remains a question. Equity futures remain buoyant after a session in the green yesterday. Headlines have taken a break from the US-China tensions this morning, but any developments between the two nations may turn risk sentiment upside down. Today’s economic calendar includes a bundle of housing data, with US house prices scheduled for 14:00 GMT and new home sales at 15:00.

EUR

The euro is edging higher against the dollar this morning amid an optimistic market mood after having traded along similar lines to sterling on Monday, showing limited volatility as liquidity was thin with both US and UK markets out of action. This morning, the GfK consumer sentiment index in Germany forecasted a slight increase from -23.4 in May to -18.9 in June, marginally below the consensus of -18.0. While the aggregate consumer confidence of the June release may seem to have improved only marginally, the details of the May release that were published along with it are optimistic. The main expectations index rose from -21.4 in April to -10.4 in May, almost double the level in March when countries gradually started to implement lockdown measures and provided a glimmer of hope for the euro. This afternoon at 13:45 BST, ECB Board Member Philip Lane will speak at the IIF Virtual Conference. His speech comes after comments made by Governing Council Member Francois Villeroy de Galhau this morning, who said that the Pandemic Emergency Purchase Program (PEPP) is a “masterpiece” of strong central bank reaction, and argued that the “ECB can be even more open in PEPP flexibility”. The central bank will publish its biannual Financial Stability Review at 14:00 BST to provide an overview of the current risks to financial stability in the euro area.

GBP

Sterling is trading in the green against both the euro and the dollar this morning, as the UK is returning from a long weekend after a day of minimal volatility in currency markets. Prime Minister Boris Johnson said in his Monday briefing that all non-essential UK shops will reopen from June 15 if the government can control the spread of the virus, while outdoor markets and car showrooms will be able to reopen from June 1 already. “We know that the transmission of the virus is lower outdoors and that it is easier to follow Covid Secure guidelines in open spaces”, Johnson said. The pound extended its gains this morning on the back of a continued US dollar sell-off and broad-based equity buying, with the currency outperforming most of its G10 peers. Today at 10:00 BST, BoE Chief Economist Andy Haldane will speak at the CBI Webinar to discuss how the central bank expects the pandemic to impact the UK economy, and what the role of the BoE will be in the recovery stage.

 

 

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