Dollar Lower As Fed Talks Dragged Down Equities

Asian equities are broadly lower today, following the -106.6 pts fall in Dow overnight. The yen and Swiss franc strengthened while the dollar tracked lower. Recent encouraging US economic data has further raised speculations that the Fed would taper QE measures by the year end. Boston Fed President Rosengren stated in a speech that while it may be "undesirable to abruptly stop purchases", he believed it makes sense to "consider a modest reduction in the pace of asset purchases if we see a few months more of gradual improvement in labor markets and improvement in the overall growth rate in the economy". According to former Fed chairman Paul Volcker a central banks responsibility is to maintain a "stable currency". And he noted that Fed setting an inflation target "implies a degree of accuracy in what we can actually achieve or should achieve."

The Australian dollar was additionally lifted by strong housing data. Building approvals bounced 9.1% m-o-m in April, comparing to expectation of 4.1% mom and prior month's -5.5% m-o-m fall. Swaps markets showed that traders are pricing around 20% chance of RBA rate cut in June, down from yesterday's 35% chance. In New Zealand, RBNZ governor Graeme Wheeler said that the central bank is "prepared to scale up" intervention to "dampen some of the spikes in the exchange rate". It's reported that RBNZ sold as much as NZD 256m in April, the largest number since May 2008. But such number was viewed as being small by the markets which questioned RBNZ's commitment in weakening the Kiwi. Data from New Zealand saw building permits rose 18.5% mom in April.

Overnight, the BOC left the policy rate unchanged at 1% in May. Policymakers maintained the stance that both growth and inflation were inline with projections and the economic recovery remained in progress, though slow. Same as the previous statement, the central bank viewed that it is appropriate to keep interest rates low but affirmed that "some modest withdrawal will likely be required". This has made the BOC the only G7 central banks signaling a tightening stance on the next move. The concluding statement is the same as the April one with the central bank stating that "with continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2% inflation target". This is the last meeting for Governor Mark Carney as he departs for the capacity of the BOE Governor from July. The incoming BOE Governor is Stephen Poloz, the current Export Development head.

Elsewhere, Swiss GDP grew much more than expected by 0.6% qoq in Q1. Eurozone confidence indicates will be the main feature in European session. US will release Q1 GDP revision, jobless claims and pending home sales. Canada will release IPPI and RMPI.