USD has recovered overnight with the S&P 500 and Nikkei 225 also closing higher. 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.
Oil has had another positive day with WTI front month now pushing above the $51.50 following a reduction of 1.5mn barrels (less than the 2.7mn expected) in the US API crude oil inventories last night. The US EIA will release the official weekly oil stock report today at 1430GMT and risk is skewed to the upside ahead of the OPEC meeting on Thursday Read full article.
The BoC will meet on Wednesday but there is no monetary policy review or press conference. The focus will hence remain on the language that BoC follows with regards to the developments across the border. If the BoC downplays the uncertainty stemming from US political turmoil and provides a similar message to the one that was given previously, we are likely to see CAD upside. That said, any moves in CAD are likely to be tempered ahead of the OPEC meeting.