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Euro Extends Rally after Hawkish Comments from ECB's Hansson Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Jan 16 18 03:09 ET

Although the US market was closed on Monday, the greenback extended weakness and was down against major currencies. Aussie was the best performer as driven by expectations of robust Chinese economic growth data (due Thursday) as well as strong commodity prices. European currencies remained firm with EURUSD soaring to the level not seen since December 2014. Comments from ECB Governing Council member Ardo Hansson added to the hawkishness. USDCAD fell -0.8% amidst elevated speculations of another +25 bps rate hike at the BOC meeting on Wednesday. In the commodity sector, crude oil prices rallied further, thanks to OPEC/ non-OPEC producers' commitment to output cut. However, there have been emerging hopes that the cut would terminate as oil prices approach US$ 70/bbl. The front-month Brent crude oil contract, extending the strength for a 6th consecutive day, soared to as high as 70.37 before settling at 70.26, up +0.56%. The WTI contract gained +0.78% for the day.

ECB Governing Council member Ardo Hansson suggested in an interview with the Boersen-Zeitung newspaper that "there are certainly good reasons to reduce the importance of the net purchases in our communication soon - also with a view to a potential end to these purchases". He added that if GDP growth and inflation continue to develop in line with the ECB's projections, it would "certainly be conceivable and also appropriate to end the purchases after September". Hansson's comments have lifted German yields. However, the rally of the single currency appears overextended when yield differential is considered.

Staying in central bank matters, the market has priced in over 90% chance of a BOC rate hike on Wednesday. This is the key reason strengthening the loonie for four days in a row. Canada's economy is in good shape. Headline CPI accelerated to +2.1% y/y, while the core reading improved to +1.3%, in November. On the job market, the number of employment increased +78.6K in December, compared with consensus of zero, following a +79.5K addition in the prior month. The unemployment rate dropped -0.2 percentage point to 5.7%, compared with expectations of a +0.1 percentage point increase to 6%. However, the major risk would be the renegotiation of NAFTA.

On the dataflow, Eurozone's trade surplus widened to 22.5b euro in November form 19B euro a month ago. This came in largely in line with expectations of 22.4B euro. For the day ahead, Germany's headline CPI probably stayed unchanged at +1.7% y/y in December. In the UK, headline CPI probably eased modestly, by -0.1 percentage point, to +3% y/y in March. Core CPI might have slowed to +2.6%, from November's +2.7%. The US Empire State manufacturing index probably rose to 19 in January, from 18 in the prior month.

 

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