CANADA AND JAPAN INFLATION MISSES ESTIMATES AS CARNEY SOUNDS DOVISH
The Japanese Statistics Bureau released the monthly consumer prices data. The data showed that the country’s consumer prices eased in March as analysts had forecasted. The core CPI data that excludes the volatile food products rose by 0.9% in March. This was lower than the 1.0% growth in February. The national CPI, which includes volatile products (food and energy) rose by 1.1%, down from last month’s 1.5%. On a monthly basis, the CPI rose by 0.9%, down from last month’s 1.0%. The sluggish CPI growth could give the BOJ an ideal excuse to extend its historic stimulus package. The governor had promised to consider a rate hike in the second quarter of 2019.
The Swiss Franc continued the downward momentum against the dollar. This came a day after the Swiss National Bank (SNB) president told Bloomberg that he was not in a hurry to intervene. An increase in interest rates by the SNB would mean a major reversal for a central bank that has used negative interest rates for months. The officials have pledged to intervene if necessary to keep the currency in check. UBS reiterated its bearish stance on the currency.
Yesterday, the Office of National Statistics (ONS) released weak inflation data. Since then, the consensus among traders was that the BOE could skip the rate hike in May. As a result, the pound fell against its major peers. In the evening, Governor Mark Carney confirmed traders’ fears. He went even further, saying that Brexit negotiations could delay a possible rate hike. In the previous months, Carney stated that the bank’s decisions would assume a positive outcome on Brexit negotiations.
The Canadian Dollar fell after Statistics Canada released inflation data. The data showed that the country’s CPI rose by 0.3% in March, a decline from February’s 0.6%. On an annual basis, the CPI rose by 2.3%, which was higher than February’s number but lower than the analysts’ forecasts. The core CPI for the month rose by 0.2%, which was lower than 0.6% and at an annualized rate of 1.4%. This was lower than last month’s 1.5%.
The EUR/USD pair declined to the lowest level since Monday last week. This reversal came after weeks of upward momentum that saw the pair reach the highest level since 2014. The dollar strength can partly be attributed to the breakthrough in the US negotiations with North Korea. It can also be attributed to the treasuries market. Today, treasuries fell after a day of major gains. The 10 year and 5 year notes are now yielding at 2.921% and 2.760% respectively. After sharp declines today, expect the pair to rise slightly as the bears take profits.
The USD/JPY continued the rally started a month ago when it traded at 104.63. It is currently trading at 107.60. The pair’s rise today came after Japan released weak inflation data. It can also be attributed to the easing of North Korean tensions since most traders view the yen as a safe haven currency. In addition, the problems facing Prime Minister Abe have contributed to the weakness. Abe has seen his approval ratings fall to 26% after he was accused of corruption. Therefore, the pair could continue moving higher as investors lack the incentives to buy.
The dollar continued to strengthen against the Swiss franc after the governor of SNB sounded dovish on future interest rates. It continued a rally started in mid-February when the pair reached 0.9185. Since then, it has surged by almost 6% to trade at 0.9725. As the SNB continues its dovish view, and as the economy appears to be doing well boosted by the weak franc, there is a likelihood that the pair could test the 0.9856 and the 0.9980 levels.