G10 FX Week Ahead: Hard As Iron

Iron ore is the market to watch for AUD next week, although the April jobs report in Australia will also be in focus. The recovery in employment should have continued in April, although likely at a lighter pace. Any market impact of the release may be relatively contained considering any hawkish turn by the Reserve Bank of Australia is unlikely to be imminent considering weak inflation. The minutes of May’s RBA meeting should reiterate how low inflation continues to make a case for “lower-for-longer”.

NZD: A very quiet week



Week ahead bias Range next week 1 month target



Mildly Bullish 0.7170 - 0.7330 0.7400

Unlike AUD, the Kiwi dollar doesn’t have to face the impact of a drop in its main export commodity price and should therefore be facing less downside risk next week.

It is going to be a very quiet period in New Zealand data-wise as we head into the May 26 Reserve Bank of New Zealand meeting, with the bank starting to feel the pressure to sound less dovish considering the better-than-expected recovery in the jobs market, inflation not far from target and – although this may not be explicitly mentioned – house prices still struggling to trend lower despite the government’s measures.  

CAD: Inflation surprise can fuel tapering expectations further



Week ahead bias Range next week 1 month target



Mildly Bearish 1.2000 - 1.2160 1.2000

CAD has remained more protected from the swings in risk sentiment this week, signalling how the bullish momentum on the loonie has not entirely faded yet. We discuss the outlook, and our new forecast profile for CAD, in “CAD: Hard to buck the bullish trend”. In addition to the supportive influence of a less dovish Bank of Canada, we expect the improvements on the vaccination side in Canada to make markets less reactive to bad data for those months affected by Covid-19 restrictions.  

The key event next week is the inflation report for the month of April. Following the big jump in CPI in the US last week, markets are likely positioned for a relatively strong read also in Canada, although containment measures likely prevented a similar jump in prices. The key difference between the US and Canada, however, is that the BoC has proven to be reactive to improving domestic fundamentals, which suggests that a jump in inflation may prompt markets to price in an even faster unwinding of the BoC asset purchases this year. USD/CAD may start to approach the 1.2000 level.

CHF: Is ECB tapering playing a role here?



Week ahead bias Range next week 1 month target



Mildly Bullish 1.0930 - 1.1030 1.1100

EUR/CHF continues to trade on the soft side – even after what seemed to be quite a benign ruling on the Polish FX mortgage saga. Casting around for factors that could be depressing EUR/CHF, we note the recent rise in BTP:Bund spreads. The 10 year spread is gaining a little momentum to the upside (+20bp over the month), largely on the view that the ECB will reduce its aggressive PEPP buying scheme. Recall this scheme has primarily been buying government bonds and Italy had been a big beneficiary here. Wider BTP:Bund spreads can occasionally depress EUR/CHF. Further speculation over this PEPP slowdown could cause some more problems for EUR/CHF.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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