Action Insight

RBNZ left the OCR unchanged at 1.75% in May. Policymakers shrugged off the recent NZD depreciation and the rise in inflation, indicating that the monetary policy would likely stay unchanged for the rest of the year and probably until 2020 before tightening. The market was disappointed by the lack of hawkish comments and the unchanged forward guidance. Down -1.85, NZDUSD slumped to an 11-month low of 0.6816 after the announcement.

Dollar rally lost some momentum as markets are concerned that US President Donald Trump's firing of FBI Director James Comey could delay his tax reform. In a controversial move, Trump abruptly fired Comey who oversaw an FBI investigation into Trump's tie with Russia during last year's election campaign. Trump's tax reform was originally targeted at approval by the Congress by August. It was already delayed after the healthcare act failure. Markets are concerned that there will be more distraction to Trump ahead and further slow down the progress on tax reforms.

China's headline CPI accelerated to +1.2% y/y in April, from +0.9% a month ago, as mainly driven by the recovery of food disinflation. Food price contracted -3.5% y/y, following a -4.4% drop in March. Nonfood inflation rose to 2.4% y/y in April from +2.3% a month ago. Core inflation (excluding food and energy) improved to +2.1% y/y from +2% in March. Such level should be in line with the government's target. PPI moderated to +6.4% in April from +7.6% in March. The deceleration came in more than expectations. A key contributor to the slowdown was commodity prices which slowed further in April as low base effects dissipated. Global prices also pulled back after the strong rally earlier in the year.

Dollar retreats mildly today but remains the strongest major currency for the week. The greenback is firmly supported by expectation of a June Fed hike. And comments from Fed officials indicate that they are looking through the weakness in Q1 and maintain their preference on the policy path for the year. A total of three rate hikes is the base case and Fed will start shrinking the balance sheet by the end of the year. This expectation is also reflected in treasury yields. 10 year yield rose 0.031 to close at 2.407 overnight, above 2.391 near term resistance. The development now opens up the case for a retest of March high at around 2.62. Meanwhile, Swiss Franc and Japanese Yen remain the weakest ones as political risks in Europe eased.

Dollar jumps sharply today as markets responded positively to comments from Fed official. Also, as political risks in Europe subsides, traders are getting more certain that Fed will hike in June. Indeed, Fed fund futures are now pricing in 87.7% chance of a June hike, comparing with 67.5% a week ago. Dollar index reaches as high as 99.55 so far today and the break of 99.46 resistance is seen as an indication of near term reversal. Meanwhile, the Japanese yen is trading as the weakest major currency, together with Swiss Franc, as markets are back into risk seeking mode. FTSE, DAX and CAC are all trading mildly higher after yesterday's brief pull back. US futures also point to higher open as NASDAQ and S&P 500 could extend the record runs.

Dollar followed US stocks and yields higher overnight but it's losing momentum in Asian session. 30 year yield was back above 3.0 handle and closed at 3.014, up 0.025. 10 year yield also reached as high as 2.390 before closing at 2.376, up 0.024. 10 year yield is now close to 2.391 near term structure resistance. Meanwhile, Dollar index staged a solid rebound and is back above 99, comparing to last week's low at 98.54. But it will take a break of 99.46 resistance in the Dollar index to confirm near term reversal. In other markets, Gold dipped to as low as 1221 yesterday and is staying soft at around 1227. WTI crude oil's rebound from 43.76 lost steam after failing to take out 47.01 near term resistance.

After initial spike on news of French presidential election, Euro quickly retreated. While weakness in the common currency is limited so far, the price actions suggest that it's now in a near consolidation phase. And focus will move away from Euro to others. Two major focuses of the week are BoE Super Thursday and RBNZ rate decision. In particular, Sterling could ride on cross buying in EUR/GBP and a hawkish twist in BoE inflation report to extend recent rise. Meanwhile, Loonie and Aussie will look into development in energy and commodity markets. Canadian Dollar rebounds today with the help of recovery in oil price. However, WTI is starting to feel heavy again ahead of 47 handle. Overall, Dollar recovers broadly but the outlook is mixed so far as it's not in focus.

The global financial markets react little to the highly expected win of pro-EU centrist Emmanuel Macron's in the French presidential election. Euro trades generally lower with Swiss franc as the expectation became news. Dollar on the other hand, trades mildly higher. Strength in the greenback is mildly overwhelmed by New Zealand dollar. The Kiwi is lifted on expectation that RBNZ would sound more upbeat in this week's policy statement. Canadian Dollar follows as oil price stabilized after last week's steep selloff. Meanwhile, Aussie is weighed down by weaker than expected import growth in China.

Centrist independent Emmanuel Macron has won the French presidential election in a decisive victory. With virtually all votes counted, Macron has taken 66% of votes in the second round runoff, compared with far-right populist Marine Le Pen's 34%. While the election outcome had been suggested in the pre-election opinion polls, financial markets still reacted positively as defeat of Le Pen signaled a diminished risk of Frexit, a real concern haunting politicians and investors across the globe after the surprising Brexit referendum and Donald Trump's victory in US presidency. Despite her loss, it is the highest number of votes that far-right parties have ever received in modern French history. As she noted in the concession speech, she was 'designated the leading opposition force in this second round', Turnout of this election was 65.4%, 6.6 percentage points lower than that in the 2012 runoff and the lowest since the second round of the 1981 election. The total number of abstentions and spoiled votes, at 12 million, was greater than 10.7 million received by Le Pen, underpinning the general public's discontent over the current political and economic environment in France.

Euro surged broadly last week and led European majors higher on expectation that pro-EU centrist Emmanuel Macron will have an easy win in French presidential election this Sunday. Traders seemed to have ignored the news about hacking attack on Macron's campaign. With 20 pt lead over EU-sceptic far-right Marine Le Pen, there should be enough safety margin for Macron. The focus is now on the reactions in that markets on the results during the initial part of next week. As Macron's win should be well priced into the markets, there is prospect of a setback in Euro after the facts. However, judging from the strength in European indices, it's believed that there is solid underlying optimism in the European economy. And, strategy could indeed be "buy-pull-back" rather that "sell-on-news".

Dollar stays weak against Euro and Sterling in early US session as non-farm payroll risk is cleared. NFP showed 211k growth in the US job market in April, above expectation of 180k. However, prior month's weak figure was revised further down to 79k from 98k. Unemployment rate, however, dropped to 4.4%, down from 4.5% and below expectation of 4.6%. That's the lowest figure in nearly a decade since May 2007. Average hourly earnings showed 0.3% mom growth, in line with consensus. But prior month's wage growth was revised down to 0.1% mom.

Dollar is trading mixed as markets are turning their focus to employment data from US today. Non-farm payroll is expected to show 180k growth in April. Unemployment rate is expected to climb back to 4.6%. Average hourly earnings are expected to rise 0.3% mom. Looking at other employment related data, ADP private payroll growth slowed to 177k in April, down from 255k. Employment component of ISM manufacturing dropped sharply from 58.9 to 52.0, hitting the lowest level this year. Employment component of ISM services was nearly unchanged but stayed low at 51.4. Conference Board consumer confidence dropped to 120.3, down from 124.9, but was solid. Overall, other employment data argue that we won't have much chance of an upside surprise in today's NFP. Nonetheless, some attention would be on revision to March's poor number of 98k. Also, expectations is high on the 0.3% wage growth which leaves room for disappointment.

Dollar trades softer against European majors as the brief lift from FOMC statement fades. Economic data from US are solid but provide little support to the greenback. Initial jobless claims dropped -19k to 238k in the week ended April 29, below expectation of 246k. Continuing claims dropped 23k ti 1.96m, lowest in 17 year. Challenger report showed -42.9% yoy fall in planned layoff in April. Trade deficit narrowed slightly to USD -43.7b in March. Non-farm productivity dropped -0.6% in Q1 while unit labor costs rose 3.0%.

We view the recent decline in Australian dollar as a catch-up of the selloff of the iron ore price from its February peak. Spot price for 62% benchmark iron ore slumped more than 30% in 2 months after reading a peak of US$90/tones on February 21. During the period, AUDUSD had been trading within a broad range and dropped around -2%. The relatively resilience in Aussie was likely driven by the broad-based weakness in the greenback as soft dataflow had diminished expectations of a rate June rate hike. Recall the selloff of iron ore prices accelerated in March, after China's pledge reduce steel capacity. The tighter liquidity conditions in China's money markets have reinforced concerns over the government's efforts to crack down the steel industry.

Dollar edged up mildly after a rather uneventful FOMC rate decision. The lift on the greenback was from the fact that Fed tried to talk down Q1's weakness. And there is no change in the expected rate path for Fed as markets are pricing in over 70% chance of a hike in June. But there was nothing for Dollar bulls to cheer neither. Traders will look into non-farm payroll report from US to be released tomorrow. For the moment, focuses remain on the weakness in Japanese Yen and Australian Dollar. In particular, the latter was dragged down to the lowest level since January by the slump in iron ore prices. Iron ore price started tumbling after Chinese Premier Li Keqiang indicated the plan to cut steel capacity. And based on that, Australia's export values would probably continue to fall further ahead and there is more downside potential in the Aussie.

As widely anticipated, the FOMC left the target range for the Fed funds rate unchanged at between 0.75- 1%. Although the accompanying statement was largely unchanged from the previous month, the implications were important in light of the slowdown in the first quarter. While acknowledging the recent weakness in growth and inflation, policymakers attributed it to 'transitory effects'. The downplaying of 1Q17's disappointments underpinned the Fed's determination to carry on its normalization plan. The FOMC maintained its economic outlook and the gradual rate-hike approach. We continue to expect two more rate hikes this year with one coming in June.

Dollar strengthens against most major currencies after FOMC left interest rate unchanged at 0.75-1.00% as widely expected. Most importantly, Fed dismissed the weakness in Q1 and noted in the accompanying statement that "slowing in growth during the first quarter as likely to be transitory". Fed maintained that "with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace". Meanwhile Fed also noted that " labor market has continued to strengthen even as growth in economic activity slowed". And, "job gains were solid, on average, in recent months, and the unemployment rate declined." "Labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term." And, risks are "roughly balanced". While there is no hint about the timing of the next hike, the statement does nothing to change the expectation of a hike in June.

Dollar is steady against European majors as FOMC rate decision looms. Job data from US is basically in line with expectation and triggers little reactions. Instead, news regarding ultra-long bonds sends the Japanese Yen lower again. Released from US, ADP report showed 177k growth in private sector jobs in April, comparing to expectation of 178k. The US Treasury Department said today that it's conducting an "internal review" regarding ultra-long bonds. The department was meeting with "a broad variety of market participants" regarding the pros and cons of 50-year and 100-year securities. Earlier this week, Treasury Secretary Steven Mnuchin said that ultra-long bonds absolutely makes sense to the Treasury. 30 year yield jumped on Monday after Mnuchin's comments.

Dollar strengthens mildly as markets await FOMC rate decision but momentum is limited against European majors. Notable moves are seen in Canadian dollar which is weighed down by oil prices. Meanwhile, Australian Dollar follows stocks lower but is holding above near term support at 0.7439 against Dollar. The Aussie is possibly weighed down by selling against New Zealand Dollar too after impressive job data of the latter. Sterling is also generally weaker today on news that EU is raising the amount of the Brexit deal for UK to EUR 100b. Meanwhile, Euro is also a touch softer ahead of French election TV debate.

Yen weakens broadly as concerns over North Korea tensions continue. Japan Finance Minister spoke in a conference in California, US, yesterday. He warned that while yen is always "said to be a safe-haven currency", the situation in North Korea made it "extremely unstable". And he emphasized that "we should always think about what the yen would be like if something happens in North Korea." Regarding trade relationship, Aso said Japan and 10 other countries should push ahead with the Trans-Pacific Partnership with the involvement of the US. But he is optimistic that US will eventually find it better to rejoin. He said that "it's not a fact that the U.S. will be able to gain more from bilateral framework than TPP." The Japanese currency is also weighed down by renewed strength in US treasury yields. US Treasury Secretary Steven Mnuchin said yesterday that ultra-long bonds are "something that could absolutely make sense for us at Treasury."