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Market Briefing: Bereft of New Data, Currency Markets Turn Windless

CalendarJune 6, 2023

Financial markets are showing signs of slipping into the summer doldrums this morning, with volatility collapsing and trading ranges shrinking across a range of asset classes - even as a series of central bank announcements looms on next week’s calendar. North American equity futures are setting up for a quiet open and US yields are retreating from their highs. The dollar is broadly working toward erasing yesterday’s losses even as other majors turn in a mixed performance.

The Australian dollar leapt higher last night after the country’s central bank - canary in the global monetary coal mine - delivered a surprise rate hike. In the statement setting out its rationale for raising the cash rate by a quarter percentage point to 4.1 percent, the Reserve Bank of Australia said “the board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of employment”. This language suggests policymakers think a hawkish message is necessary to reduce the likelihood of an unanchoring in inflation expectations - even at the risk of pushing the economy into a downturn.

Both major crude benchmarks are back to pre-Saudi cut levels, suggesting that market participants think weakness in the global industrial complex will weigh on consumption growth. With most manufacturing purchasing manager indices firmly in contractionary territory, freight volumes coming down, and consumers shifting spending toward intangible services, the demand outlook has deteriorated in recent months, and could worsen further if the broader economy enters a downturn.

Non-oil commodities are gaining some altitude after Bloomberg and other news agencies reported that Chinese authorities are asking major banks to cut deposit rates in an apparent effort to stimulate liquidity generation across the economy. A long-rumoured cut in reserve requirement ratios could follow, indicating a greater willingness to deploy broad-based monetary easing tools in support of lending to the infrastructure, manufacturing, and household sectors - all of which contribute to the country’s consumption of raw materials.

Beyond Thursday’s US jobless claims and Friday’s Canadian job numbers, there are no major data releases on the North American calendar through the remainder of the week. Instead, communications from the Bank of Canada, along with next week’s meetings at the Federal Reserve, Bank of Japan, and European Central Bank are likely to serve as anchor points for market activity.

Tomorrow’s Bank of Canada announcement could generate some fireworks, but given that markets are fully positioned for a hike within the next two months, we think the potential for an upside surprise is relatively minimal. Instead, Thursday’s Economic Progress Report and news conference, delivered by outgoing Deputy Governor Paul Beaudry, could prove more market-moving, with an Australia-esque (aggressively hawkish) communications strategy carrying the potential to trigger a material narrowing in rate differentials against the greenback.

Upcoming Events


CNY    Trade Balance, May

AUD    Reserve Bank of Australia Rate Decision

AUD    Gross Domestic Product, Q1


USD    Trade Balance, April

CAD    Bank of Canada Rate Decision

USD    Department of Energy Weekly Inventories


CNY    Aggregate Financing, May

MXN    Consumer Price Index, May

MXN    Bi-Weekly Consumer Price Index

USD    Weekly Jobless Claims


CAD    Employment, May

USD    Baker Hughes Weekly Rig Count


Karl Schamotta

Karl Schamotta

Chief Market Strategist

Gain insights into developments in global currency graphSubscribe