Markets Await BOE Inflation Report And UK Job Data

The theme in the forex markets remained unchanged this week, with strength in Sterling and weakness in Kiwi. Other major currencies are generally mixed with some limited softness in dollar. BoE quarterly inflation report will be the main focus today. Some analyst noted that the inflation report could be a sterling negative event as BoE is expected to revise down this year's inflation and GDP growth projection. Nonetheless, based on the current momentum in the pound, we believe that such downward revision wouldn't have too much impact on the UK currency. Instead, the focus would be on how BoE would reference to the current market pricing of the first rate hike, that is in mid 2016. Also, markets will have their eyes on job data from UK, which is expected to show -20.1k fall in jobless claims in April and unemployment rate is expected to drop to 5.5% in March.

Elsewhere, Euro was mildly higher yesterday as Greece completed a EUR 750b loan repayment to IMF. It's noted by some economists that Euro was lifted by surging European yields recent, on better inflation and economic outlook. Focus will be on GDP data today. Eurozone GDP is expected to rise 0.5% qoq in Q1 versus prior 0.3% qoq. Germany, GDP is expected to slow to 0.5% qoq. French GDP growth is expected to rise to 0.4% qoq. Italy GDP growth is also expected to rise to 0.2% qoq. Upside surprises in today's data would bring EUR/USD back to key near term resistance of 1.1378/87. Also released from Eurozone include ECB minutes, German CPI final and Eurozone industrial production.

Dollar's recovery lost much momentum and is trading generally lower against other major currencies. In particular, the renewed buying in crude oil, which is back above 60 level, sent USD/CAD back to 1.2 handle. From US, retail sales is expected to show 0.3% growth in April while ex-auto sales is expected to rise 0.4%. Import price is expected t rise 0.3% mom in April. Business inventories are expected to rise 0.2% in March.

In New Zealand, RBNZ governor Graeme Wheeler said the central bank is "in the process of putting together out forecast" for the June monetary statement and there is no detailed discussions yet. He refrained from commenting on monetary policy and leave that till the meeting on June 11. Meanwhile, he said the central bank is going to tighten lending restrictions for residential property investors in Auckland to cool the housing market. There are talks in the market that RBNZ would start cutting interest rates again in September and that wouldn't be affected by the heat in housing markets. Regarding exchange rate, Wheeler reiterated that "the exchange rate is unjustified and unsustainable".