Dollar Softens Ahead Of Start Of FOMC Meeting

The US dollar is trading with a heavier bias against all the major currencies save the Japanese yen. The Scandis and Canadian dollar are leading the move. Sweden reported a 0.1% rise in the headline and underlying inflation while the median expected a decline of the same magnitude. The year-over-year pace slowed but not as much as expected.The greenback had bounced 1.7% in recent days, through earlier today before reversing low. The early June low new SEK8.60 was the low print for the dollar since last October. A return to it, and perhaps even toward SEK8.45-SEK8.50 looks likely.   

Norway reported strong regional economic surveys. The outlook for output over the next six months rose to its highest level in nearly 4 1/2 years. The central bank cited public investment, stronger private sector demand, and a smaller decline in the energy sector. The Norwegian krone is the second strongest major currency, up about 0.6% ($=NOK8.4265), while the Swedish krona is up around 0.8% ($=SEK8.6800). 

The Canadian dollar is extending yesterday’s rally. It is up about 0.5% today after gaining about 1% yesterday. The trigger was comments by the Senior Deputy Governor Wilkins whose economic optimism spurred a reassessment of the prospects for a rate hike. She cited the broadening recovery and improving labor market as considerations when deciding how much accommodation the economy requires. The Bank of Canada next meets on July 12. That seems too soon to expect a hike, but the market is on notice that the next move will likely be a hike.  

In effect, Wilkins signaled a shift in the neutral stance of the central bank, or that is the way the market understood it. Interpolating from the OIS, the market had discounted about a one-in-five chance of a hike before the end of the year as of June 1. After the June 9, strong employment report, the odds increased to one-in-four. After Wilkin’s comments, a 40% chance is discounted.