Citi analysts do not think that President Trump would be impeached although tax reforms may be delayed until 2018.
USD & JPY
Strategy: Some calm returns but damage to USD sentiment may linger.
- The Dollar Index appears supported around 98.50 but nervousness continues to linger as seen from the USDJPY hovering at 111.60-68. A daily close below 111.60 – 88 would be bearish, potentially targeting next support level at 109.60 – 69. Citi analysts see a higher risk that tax reforms may be delayed to 2018, which would make it difficult for the USD to stage a stronger comeback.
Strategy: GBP poised to head higher before the UK June 8 election.
- GBPUSD hit 1.3000 for the first time since September 2016. Stronger retail sales readings for April and positive Brexit headlines out of Germany suggest that the GBPUSD can move higher to 1.3034-65.
- Australia created another 37.4k new jobs in April, above market expectations. The unemployment rate fell from 5.9% to 5.7%. The Australian economy has created more jobs in the last two months, than in the ten months up to February 2017. Given the Reserve Bank of Australia's (RBA) already more optimistic view of the economy, Citi analysts do not expect the strong jobs data to change the RBA's current neutral policy stance.
Strategy: CAD poised to gain against the USD.
- AUD: AUDUSD initially jumped above 0.7460, boosted by the solid jobs data. The pair is now back at 0.7418 as investors refocused on the overall weakness in the Australian economy. The AUD continues to underperform the euro bloc and JPY as well as its commodity peers (NZD & CAD).
- CAD: US officials have formally notified Congress of their intent to renegotiate the North America Free Trade Agreement. The upcoming US Omnibus Report on Significant Trade Deficits on June 29 could provide signs on the Administration's trade agenda. Before that, an agreement to extend output cuts in the May 25th OPEC meeting could see USDCAD testing 1.3473.
- Singapore's non-oil domestic exports unexpectedly fell 0.7%, although this follows exceptional strength in the past two quarters. That said, the data suggests that external demand may be moderating. As such, Citi analysts expect the Monetary Authority of Singapore to be in no hurry to tighten and to keep policy accommodative.
This is an extract from the Daily Currency Update, dated 19 May 2017. Please approach a Citigold Relationship Manager if you would like a copy.