Dollar continues to pare recent gains boosted by Fed hike expectations, except versus Euro, Aussie and Kiwi. New York Fed economists wrote in a blog post published yesterday noting that Fed's delayed rate hike helped " substantially offset the effect of tightening financial conditions on the economy" seen earlier this year. And, "FOMC communication early in 2016 was likely an important factor in the re-normalization of financial conditions". And with the help of reversal in credit spreads, "the restrictive effect on GDP growth in the current quarter is expected to be much more modest than it would otherwise have been." The post echoed views that the tightening in financial conditions is probably over and Fed could now be back on track to start removing policy accommodations again.
Canadian dollar extends rebound as supported by strengthen in crude oil. WTI rises further to 49.93 today and is heading to 50 handle. Yesterday, BOC left its overnight night rate unchanged at 0.5% in May. Policymakers discussed about the impacts of wildfires in Alberta, expecting the event to drag the second quarter growth to negative but the economic impacts should be transitory. The central bank has turned more optimistic over the US growth outlook, forecasting 'a return to solid growth in 2016' in the world's largest economy and its biggest trading partner. We expect BOC to keep its powder dry for the rest of the year. More in BOC Keeps Powder Dry, Negative Impacts Of Wildfire Likely Temporary, More Optimistic Over US Growth.
In Eurozone, it's reported that ECB is considering to reinstate the waiver on Greek governments bonds soon and would start to accept them as collateral for lending to Greek banks. The waiver was abandoned back in early 2015. The reinstatement would prove as much as EUR 150m in cheap loans to banks. Also, there could be another EUR 300b in funding if Greek bonds are included in ECB's quantitative easing program.
On the data front, Japan corporate service price index rose 0.2% yoy in April. UK GDP revision, BBA mortgage approvals, index of services will be released in European session. US will feature durable goods orders, pending home sales and jobless claims.