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Rangebound Markets Await Bank of Canada Decision

With a paucity of potential volatility catalysts on the week’s calendar, markets remain broadly rangebound this morning. Equity futures are inching down ahead of the opening bell, Treasury yields are practically unchanged, and the dollar’s recent gains are fading relative to the euro and pound. Chinese exports fell dramatically in May, suggesting that a long-expected post-pandemic drop in Western goods demand is taking a toll on the world’s second-largest economy. According to data released by the Customs Bureau last night, exports fell -7.5 percent year-over-year in May, well beyond the -0.4 percent consensus, and the worst print since January. The country nonetheless...

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RBA hammer blow

• Quiet night. Equities a little higher. Bond yields consolidated. The USD index edged up slightly. AUD held onto its post RBA gains.• RBA hike. Cash rate now 4.1% with inflation concerns stepping up. We expect another hike. FX is a relative game. AUD is also influenced by global trends.• AUD events. RBA Governor Lowe speaks today & Q1 AU GDP is released. China trade data is also due. Bank of Canada meets tonight. An uneventful night for markets with limited news flow and no major economic releases. European and US equities ticked up. The US S&P500 rose by ~0.2%,...

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RBA: hiking until it hurts

In what we think was a finely balance decision, at least in terms of the timing not the direction, the RBA raised the cash rate by another 25bps to 4.1% at today’s meeting. This takes the cumulative tightening delivered since things started in May 2022 to 400bps, by far the most abrupt RBA rate hiking cycle since at least the early 1980s. The RBA reiterated that while inflation has passed its peak, at ~7%pa it “is still too high and it will be some time yet before it is back in the target range”. And in the RBA’s assessment, “recent...

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RBA in focus

• Softer US data. The dip in the services ISM exerted some downward pressure on US bond yields & the USD late in US trading.• RBA in focus. Will they or won’t they hike today? We think it is a line ball call. Most analysts & the rates market are leaning towards no change.• AUD reaction. Given expectations, AUD reaction could be uneven, with a hike likely to generate a relatively larger lift compared to the pull-back on an on hold decision. US markets consolidated overnight, with equities easing slightly (S&P500 -0.2%) and bond yields a bit lower. After rising...

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Weekly Market Update June 5

Exhibit 1 Recession fears are subsiding. Bloomberg US Economic Surprise Index Exhibit 2 Rate cut expectations are moving into 2024. Treasury Yields, % Exhibit 3 A long-expected growth rotation is firmly underway. Purchasing Manager Indices Exhibit 4 Saudi Arabia is working to bring oil markets into “balance” around $80. Production volumes, millions barrels per day Exhibit 5 Oil shorts aren’t “ouching” yet. Global benchmark prices, USD per barrel Exhibit 6 Margins of safety are widening. OPEC spare capacity, million barrels a day Exhibit 7 But observers expect further tightness. Consensus forecasts vs. implied forward prices, USD per barrel Exhibit 8...

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