RBC Capital Markets

Day ahead: The BoC rate decision (see CAD) and Powell’s semi‐annual testimony are the key events today, though we expect little new from Powell. The Fed’s semi‐annual Monetary Policy Report has already been released (last Friday) and the prepared text will closely follow that. CPI reports in the UK and Sweden and Australian labour data (AUD) are the main data releases. US Q2 earnings reports continue (BoA, Citi before the open). China’s monthly and quarterly activity data are all out overnight tonight.

CAD: Our economists (and all others surveyed by Reuters) expect the BoC to take the next step in reducing its GoC bond purchases today. This should take them to CAD2bn/week from the CAD3bn/week pace announced at the April meeting. GDP has evolved roughly in line with its April MPR projection, with the increased pace of vaccinations, low COVID cases, and (safer) reopenings likely to give the BoC added confidence in the expected growth acceleration over the summer.

With this previously factored into the BoC’s (and our own) growth forecasts and no further insight on magnitude, we think there is little reason to adjust the forward guidance timeframe from the H2‐2022 timing given in April (and June). Inflation has printed above BoC expectations and an upward forecast revision is likely, though BoC communication has noted that it still sees the recent spike as transitory and driven by base effects. USD/CAD features support at 1.2443 and resistance at 1.2547.

Citi

Ornithology is the scientific study of bird watching, and may be necessary for market participants with kiwis and hawks sighted overnight. While we thought risks leaned to the hawkish side, the RBNZ announced it would halt additional asset purchases under the LSAP program later this month, and accompanied by language that suggests a rate hike is likely later this year. We expect NZD to hold onto its gains especially in the relative space while we look to events in the day ahead.

It should be a fairly interesting session. Of course, we’ll be hearing how Powell characterizes that CPI print later today, but there are also inflation prints for GBP and SEK. Of course, we also have the Bank of Canada decision where a further reduction in the pace of bond purchases is expected. However, this may be accompanied by a neutral tone in the policy statement and press conference which could on the margin disappoint CAD bulls. TRY should see no rate change later today while we see ZAR continuing to lose ground.