Yield sensitive usdjpy rallies
USD continued to improve against the JPY as US yields rose across the curve. With the macro backdrop of us-china trade optomism and improved outlook for the US economy yield o 10 year treasuries hit 3.128%, marking a 7 year high. However, meaningful adjustment in the Feds policy path has yet to be made. Fed Fund Futures continue to price only two 25bp hike in 2018. On widening spreads (specifically in shortern duration) USDJPY rose to a sesson high of 110.992. Interestingly CHF has yet to be further influenced as political uncertianty in Italy has kept the european safe haven chf well bid. Japan CPI fell to a disappointing 0.6% y/y in April while core dipped to 0.4 from 0.5%. These reads overall distance from the BoJs 2% inflation target and general trajectory indicates no softening in BoJ reflation stance. With anchored pro inflation policy vs. US economic exceleration and pair sensitivity to spread widening suggests further upside for USDJPY.
CAD finally strengthens
Unlike what we might think, the energy-related Canadian dollar boost from continued crude oil prices rise is lively. Indeed, though the performance in USD/CAD remains rather subdued started in April 2018 due to a strong USD rally since mid-March 2018, things look a bit different when looking at CAD performance against other major currencies. The strength in loonie is particularly interesting when looking at the development in CHF/CAD, CAD/JPY and EUR/CAD for which the CAD gained ground by +5.12%, +5.08% and +4.78% respectively. Accordingly, the impression of a non-commodity impact is misleading. On the contrary, the CAD robust performance against the greenback should be praised.
Key data releases in Canada will concern April consumer price index and retail sales. Inflation readings are expected to remain stable at +0.30% m/m and +2.30% y/y along with a slight increase of +0.50% in core retail sales (prior: 0%).
Looking forward, we would favor a USD/CAD pullback in the short-term, strongly influenced by positive Canadian data releases and weakening USD momentum. Currently given at 1.2809, USD/CAD is trading sideways, expected to head along 1.2850 in the short-term.
