While the Greek crisis continues to rumble on, the music has shifted from a major to minor key, with the issue seemingly kicked into touch in all likelihood, for at least a few months or even years. Although an ECB rate announcement and press conference is due tomorrow, it is not likely to produce any surprises or items of great interest to the market. The spotlight today has swung away from Europe and passed back to the North American continent, with the U.S. Federal Reserve and the Bank of Canada each having had important things to say over recent hours.
Yellen Green-Lights USD Rise
In her testimony to the U.S. Congress today, the Chair of the Federal Reserve Janet Yellen said: ”If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy.” The market reacted immediately, with a minor but meaningful rise in the USD, which looks particularly bullish against the Canadian, New Zealand and Australian Dollars, and also the Japanese Yen.
However, a closer examination of her statement shows that she has not really said anything very meaningful. It is more a question of sentiment and emphasis. Yellen has hedged her bets, saying no more than that there should be some kind of rate rise at some point in 2015 if everything goes according to plan and there are no external shocks. This is hardly a radical statement. It is true that some pundits have recently been doubting whether any rate rise by the Federal Reserve would be implemented before 2016, but that is about it. Yellen’s statement is quite heavily qualified. The factor that might be giving it more weight today is the better than expected U.S. PPI data which came in at +0.4% compared to an anticipated +0.2%.
Bank of Canada Cuts Rates & GDP Forecast, 1.3000 in Sight
The Bank of Canada sprung a minor surprise on the market by cutting its Overnight Rate from 0.75% to 0.50%, sending USD/CAD to a new multi-year high of immediately. This followed weaker than expected Canadian Manufacturing Sales data which came in at only +0.1% as compared to an expected +0.3%. The Canadian Dollar was already falling when the Bank’s Monetary Policy Report also downgraded its GDP forecast from +1.9% to +1.1%.
New Zealand Next
The renewed strength in the USD has make the long-running NZD/USD short trend of greater interest, as this pair is falling again and at the time of writing, had just brushed the multi-year low of 0.6619. A “perfect storm” for shorts may possibly be approaching as tonight there will be data releases of high important to the NZD: the GDT Price Index and CPI data. If both prove to be worse than expected, it is probable that the low will be broken and the trend will push on with renewed strength.