ECB Delays Policy Shift

ECB delays policy shift, GBP selloff continues                        

• EUR: Takes a hit to close the week below 1.23 following headlines the ECB is said “to have had no talks on rate path after QE” and “sees scope to wait for July to signal QE end”. However, sources also warn not to be carried away by recent slower Euro data that “is not signaling a fundamental break in bloc's growth path and is not expected to impact ECB's plans to normalize policy”.

• GBP: Cable is on the verge of breaking below 1.4000 support as markets continue to adjust MPC rate expectations, shifting from May to August despite MPC member Saunders’ hawkish comments Friday. The Carney liquidation theme continues with the added weight from a Sky news report that PM Theresa May's proposals for the Irish border have been "annihilated" by EU officials.

Commodity Bloc: Canada CPI, Retail Sale: No Rush to Hike in May, BoC Can Wait Until July For Next Hike, Aussie Q1 CPI preview

• Canada’s inflation and retail sales data released Friday confirm expectations that there are few pressing matters warranting a rate hike in May, and that July may be a more suitable timing. March headline CPI at 2.3% still sees core consumer inflation remain near 2% despite upward pressures from past oil price increases on the headline while retail sales ex autos are notably weak and continue to point to real GDP growth of 1.25% annualized in 1Q 2018, suggesting the Bank will desire to see a rebound in 2Q ahead of an future interest rate adjustments. CAD therefore remains vulnerable to further profit taking post the BoC meeting last week.

• Australia releases Q1’18 CPI this week where Citi analysts expect another quarter of subdued inflation with both headline and underlying annual inflation close to the bottom of the RBA’s 2%-3% target. This is consistent with the RBA committed to the next hike likely around year end.

Asia EM: MAS still on track to tighten policy in October should US – China tensions ease, China’s growth may have peaked

• With consumer inflation expectations rising in Singapore to 3 year highs and given the “measured” nature of April’s MAS move, a further “slight” slope steepening to a “new normal’ slope of 1 – 1.5% in Oct 2018 is possible if US – China trade tensions dissipate and growth surprises positively.

• Citi analysts expect China’s growth may have peaked in Q1 and now expect 6.7% GDP growth for 2018, with a quarterly path of 6.7%, 6.6% and 6.6% in the coming quarters. Citi analysts also forecast the PBoC to increase its short-term policy rate, by around 20bps during 2018, with a 10bp hike each time when the Fed raises its policy rate.

This is an extract from the Daily Currency Update, dated 23rd April 2018. Please approach a Citigold Relationship Manager if you would like more information.