USD struggles as BOC set to join the rate hike club - BNPP

The USD has continued to lose ground, falling to new lows for the year vs. the EUR, CHF, and GBP, and, almost, vs. the CAD as well due to the hawkish central banks rhetoric globally, according to the analysts at BNP Paribas.

Key Quotes

“The driver of the USD’s collapse continues to be comments from G10 central bankers signalling tightening is approaching outside the US and setting the clock ticking down towards a time when Fed rate hikes will increasingly be offset or overwhelmed by rate hikes elsewhere.  The Fed still is likely to deliver more tightening over the next twelve months than the other G10 central banks, and the FX moves we are seeing now may ultimately forestall the central bank moves that markets are now pricing in. But for now, momentum is firmly against the USD and this dynamic cannot really be faded unless and until US data and/or fiscal policy news takes more favourable turn.”

“Our economics team has changed its forecast for Bank of Canada policy and now sees the central bank delivering a rate hike at its July 12 policy meeting. While a case could be made for waiting for more Canadian data to confirm the temporary nature of the latest dip in reported inflation, we view the decision by the Governor and his deputy governors to change the tone of comments in recent speeches as a signficant intra-meeting signal.”

“With a BOC rate hike in July already 75% priced in, market participants have begun to eye other central banks, such as the RBA, for possible changes in message and the AUD outperformed notably on Wednesday, perhaps reflecting this anticipation. Our own view is that RBA expectations will likely be disappointed in the near-term, with the RBA already facing an fx headwind. We remain short NZDCAD but have tightened the parameters on the trade, lower the stop to entry at 0.9580 and raising the target to 0.94.”