Commodity FX Bounces, Japan Retail Sales Next

A rebound in risk trades and raw materials underpinned commodity currencies Tuesday, we evaluate whether or not it will last. The New Zealand dollar was the top performer and continued to rise early in Asia-Pacific trading on Wheeler comments while the euro lagged. Japanese retail sales are up next.  

It was Turnaround Tuesday in most markets. Beaten down assets like stocks and commodities rebounded in a squeeze higher. After weeks of non-stop selling, oil bounced nearly $2 from the mid-April lows and that sent USD/CAD down to 1.2915 from 1.3015 in US trading.

These types of rapid squeezes are typical corrections in trending markets. The catalysts at the moment were position squaring ahead of the FOMC and month end. The generally last 1-3 days and are often opportunities to re-establish positions at better levels.

The kiwi rallied in early Asian trading, hitting 0.6739 from as low as 0.6595 the day before. RBNZ Gov Wheeler reiterated comments from last week's rate cut statement. That indicated he wasn't overly concerned about the post-statement bounce in the kiwi. He didn't introduce any harsher jawboning and that sent NZD/USD a half-cent higher.

Expectations for the Fed are modest with most market watchers expecting no strong hints and a continued ode to data dependency. One data point that may have given the Fed pause Tuesday was consumer confidence at 90.9 compared to 100.0 expected. It was one of the biggest misses on record and took the index to one-year lows.

Before the Fed the Bank of Japan is in focus with retail sales for June due at 2350 GMT. The consensus call is for a 0.9% m/m decline. It comes on the heels of a 1.7% surge the month before but it's still unwelcome news for the BOJ as they weigh whether to stimulate further.