Dollar Recovers Poise
Asian equity markets slipped into negative territory overnight, helping set the scene for a modest dollar recovery after Monday’s weakness. 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. Investor focus is likely to shift quickly back to Europe now, and to Eurozone bond markets in particular. Spain auctions bills today, but 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-2.5bn. 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. Germany’s ZEW survey, Eurozone CPI, and a speech by ECB President Draghi will vie for investor attention today. 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 Europe
UBS Investment Bank