G10 FX Economic for Wednesday 24/5
The US DoE crude inventory data showed a change of -4.43mn compared to -2.4mn expected; the Brent crude front-month jumped testing $54.60 but we haven’t yet seen a break as the DoE data is on the similar lines as API data last night. We don’t see much correction as risk seems skewed to the upside for oil and commodity bloc currencies as a 9-month extension deal from OPEC meeting on Thursday is very much likely. For OPEC timeline click here. For what is expected from OPEC meeting click here.
The BoC downplayed the uncertainty stemming from US political turmoil and recent inflation rate miss. We see a further CAD upside given that the BoC was fairly hawkish; Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent” earlier it said “significant uncertainty on the outlook.”. That said, OPEC meeting on Thursday is also a big event for CAD and this may temper gains.
The [US 10 year yields also rallied] late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high (83%) and hence, it is unlikely that [FOMC minutes] will be able to push the probability of a June rate hike significantly higher given that FOMC minutes are likely to be stale by the recent US political developments. That said, we will look for any indication of future the pace of tightening and plans for balance sheet tapering. Also, there is a slight downside risk to USD from the FOMC minutes coming in slightly dovish given that FOMC statement had erred on the hawkish side; this scenario, however, is least likely. Elsewhere, [ECB President Draghi] will speak at 1245 GMT however, we are unlikely to get any hints on ECB June 8th meeting as he is speaking on financial stability.