From the FXWW Chatroom: The market is likely anticipating a hawkish shift from the Riksbank and RBA, in line with other G10 central banks. EURSEK would be vulnerable to a squeeze higher on disappointment.
The market will be focused on any information in the FOMC minutes (5 July) regarding the timing of balance sheet reduction. ECB minutes will also be released (6 July).
We expect the US unemployment rate to remain unchanged at 4.3%.
Following the hawkish shifts in recent weeks from several G10 central banks – ECB, BoE, BoC, RBNZ and Norges Bank – the market is likely anticipating the Riksbank and RBA (4 July) to follow suit. EURSEK has declined 1.4% this past week despite a broad EUR rally. While we expect EURSEK to decline over the medium-term (targeting 9.40 by year-end), we think the market could be disappointed by only a moderate shift in Riksbank rhetoric. The central bank remains extremely FX sensitive and hence SEK appreciation will likely need to be gradual or it will force a more dovish Riksbank message.
The market will be focused on any information in the FOMC minutes (5 July) regarding the timing of balance sheet reduction. ECB minutes will also be released (6 July).
We expect the US unemployment rate to remain unchanged at 4.3%.
Following the hawkish shifts in recent weeks from several G10 central banks – ECB, BoE, BoC, RBNZ and Norges Bank – the market is likely anticipating the Riksbank and RBA (4 July) to follow suit. EURSEK has declined 1.4% this past week despite a broad EUR rally. While we expect EURSEK to decline over the medium-term (targeting 9.40 by year-end), we think the market could be disappointed by only a moderate shift in Riksbank rhetoric. The central bank remains extremely FX sensitive and hence SEK appreciation will likely need to be gradual or it will force a more dovish Riksbank message.
AUDUSD has rallied to 0.77, approaching 2017 highs. However, we do not expect gains to extend much further and view current levels as attractive to build shorts (we remain short via options in our recommendations portfolio). BNP Paribas FX Positioning Analysis signals AUD short positions (which were quite large in early May) have been fully unwound. BNP Paribas STEER™ signals AUDUSD’s sensitivity to global equities, while still high, has fallen significantly (Chart 2). This suggests AUDUSD is vulnerable to a less hawkish RBA message.