Focus Shifts to BoC
After a shaky start in Asia, risk assets squeezed higher in Europe, though we view this as more a function of low trading volumes, and established market correlations which tend to provide modest dollar selling in that environment. The news and data flow was generally supportive for this, the German ZEW beat consensus estimates while a Spanish bill auction passed with minimal problems. Fears for Thursday’s bond auction have receded somewhat after Spain’s Tesoro announced its intention to issue a smaller-than-expected amount of only EUR 1.5bn-2.5b. The minutes from the RBA’s April 3 policy meeting sounded slightly more dovish than the policy statement itself, and more overtly signaled the possibility of a future rate cut – inflationary pressures permitting. Meanwhile the ECB’s Securities Markets Program has been dormant now for five consecutive weeks, as yesterday’s data confirmed, but we note it can in principle be activated at any time to lower sovereign bond yields. Also in the spotlight will be the Bank of Canada, which is expected to remain on hold, though the recent strength of the employment data has raised the prospect of a shift towards an explicit tightening bias. At the very least we would expect the policy statement to sound somewhat more hawkish, consistent with a possible upgrade to the GDP forecast in the quarterly monetary policy report due on Wednesday. This reasoning figured prominently in our recent decision to lower our three-month USDCAD forecast to 0.98 from 1.03.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank