NZD proves resilient in face of weaker Chinese economic momentum and a softer Yuan

Key Movers

Price action across major currencies was largely muted through trade on Wednesday with market attentions squarely affixed to yield performance and rate expectations. The US yield curve steepened, leading into the release of the FOMC’s June meeting minutes. While 2-year rates were little changed 10 year yields climbed 8 basis points as expectations for multiple rate hikes through the coming months were priced into the curve. A strong of stronger data sets have again refueled expectations the Fed will need to lift rates by at least another 35 basis points over the coming months. European rates in contrast climber just 2 basis points as a string of monetary policy friendly data suggested the ECB current program of tighter rates is finally gaining traction. With yields favouring the USD, the Euro slipped toward 1.0850 finding support near 1.0860. In other news, the Great British Pound continues to struggle to break away from level at/near 1.27. UK rates surged overnight with both 2 and 10 year rates up 7-8 basis points after research lead by JP Morgan suggested the Bank of England will need to lift rates as high a 7%, propelling the economy into recession if it is to gain control of inflation. Markets continue to price in higher rates but the promise of higher returns are no longer supporting the Pound as investor concerns for longer run growth prospects outweigh near-term yield gains.

Our attentions now turn to a crowded US macroeconomic ticket with ADP employment data, jobless claims, JOLTS Job openings data and an ISM Services PMI report, ahead of tomorrow’s all important non-farm payroll print.