USD: Encouraging signs from US-China trade talks
Federal Reserve speakers today should reiterate the message of the gradual policy tightening ahead, though we expect a limited reaction in the markets as this is in line with market expectations (two-three hikes already priced in for this year). We see the reported Chinese offer to cut its trade deficit with the US by $200bn as encouraging, but with the talks still continuing, markets need more clarity. The current stage of the US domestic political cycle (Republicans lagging well behind ahead the mid-term elections in November) partly suggests that the US administration is to push for further concessions to present a big (and needed) win to the electorate.
EUR: Staying around the EUR/USD 1.1800 level
We expect EUR/USD to remain around the 1.1800 level today with the market focus on the forthcoming developments in Italian politics. The coalition government is to meet President Sergio Mattarella on Monday.
CEE: RON being the stand out performer
Currencies in central and eastern Europe remain under pressure (both EUR/Polish zloty and EUR/Czech koruna have been flirting with the psychological 4.30 and 25.60 levels respectively) as the mix of challenging emerging markets trading, struggling EUR/USD and Italian political woes weigh on the currencies. As per FX Daily, we don’t expect Italian politics to exert long-lasting pressure either on euro itself or CEE FX, while the latter now looks attractive from a valuation perspective (PLN in particular). We continue to flag the attractiveness of the Romanian leu given the managed nature of the currency and attractive implied yields (around 3.5% on 12-month basis for EUR/RON).
CAD: A rebound in retail sales to give policymakers some comfort
Following the tailwind of rising oil prices during the past few days, the focus today turns to the two domestic Canadian data releases: April CPI and March retail sales. While inflation is set to remain there or thereabouts around the 2% Bank of Canada target midpoint, we note it's the activity side that holds the key to a near-term BoC hike. A rebound in retail sales – following the solid March manufacturing sales on Wednesday would give policymakers some comfort and should be modestly supportive for the Canadian dollar. USD/CAD to push back below the 1.2800 level again.