US CPI keeps focus on Fed vs BOC and ECB.

Group Research – Econs, Philip Wee 9 Jun 2021

USD is holding ground ahead of Thursday. The Fed’s assurance that US inflation will be transitory will suffer a setback if US CPI inflation rise again to 4.7% yoy (consensus) in May from 4.2% in April. It did not help that WTI crude oil prices have joined Brent above USD70/bbl. An increase in expectations for the Fed to start discussions on tapering asset purchases during next week’s FOMC meeting has outweighed those expected for Canada and the EU. The Bank of Canada is, at its meeting today, likely to adopt a wait-and-see approach rather than surprise with more pre-emptive intentions on inflation. ECB President Christine Lagarde may, at her press conference tomorrow, find it premature and unnecessary to debate about dialling back the emergency measures. USD will gain more traction if a higher USD/CAD and a lower EUR/USD crosses each other in the 1.21-1.22 region.

CNY and CNH are holding near 6.40 per USD with a depreciation bias. A new Covid-19 outbreak in Guangdong, which accounts for almost a quarter of China’s exports, could slow operations at ports in Shenzhen and Guangzhou. Export growth has already slowed more-than-expected in May. The higher import growth last month was dismissed and seen inflated by higher commodity prices and a stronger CNY. On Tuesday, the US Biden-Harris administration announced that the US Trade Representative will lead a supply chain disruptions task force to address China’s unfair trade practices and strengthen America’s supply chains.

US President Joe Biden’s first foreign presidential trip in Europe will rally allies to champion democracy. He will link America’s foreign policy agenda to domestic issues at the G7 Summit in UK this weekend; the G7 has already agreed to his push for a global minimum tax of 15%. He will stop next in Brussels for the NATO Summit on 14 June and the EU meeting on 15 June where cybersecurity (taking aim at Russia and cybercurrencies) and a more assertive China will be on the agenda. The trip will end in a summit between President Biden and Russian President Vladmir Putin in Geneva on 16 June.

Philip Wee

FX Strategist – G3 & Asia