A Race to Cut?

Hawkish central banks continue to fall like dominoes and as they do, it highlights the relative yield advantage for dollars. USD holds to most of Wednesday's gains, while EUR drops across the board after downwards GDP revision from the EU Commission. Today's docus shifts to the Bank of England decision, particularly on the minutes, inflation report and Carney's press conference. The shift to neutral at the RBA mirrors changes at the Fed, BOC, BOE and ECB. That leaves few global central banks even contemplating hikes in the first half of the year. A new Index trade has been posted, backed by 4 charts and 5 key notes.

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Will yield differentials regain FX traders' attention? The US dollar ticks all boxes and once again that makes it the best of a mediocre bunch. That was highlighted Wednesday by a grind higher in the dollar. The November trade deficit narrowed to $49.3B compared to $54.0B expected but the market reaction was slight on account of the lag in the data. In turn, the euro, pound and loonie to one-week (or more) lows.

On the Brexit front, the pound continues to languish as the market continues to see few signs of wiggle room for May. A report said the Malthouse Compromise talks were in trouble and the ERG was also showing signs of discord. Cable was lower for the fifth day. GBPUSD bulls will aim to defend the 1.2860 support on a daily closing  basis.

The New Zealand dollar was hit hard late in the day as the employment report disappointed. Jobs increased 0.1% compared to 0.3% expected and the unemployment rate rose to 4.3% from 3.9% despite declining participation.  The kiwi was already struggling on the day and promptly fell to 0.6765 from 0.6825. The RBNZ is quickly becoming the odds-on favourite for the first central bank to lower rates with a 33% chance of a cut priced into OIS, up from 20% before the data.