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• Prior month 2.3%
• CPI m/m -0.1% versus -0.2% expected. Prior month +0.3%
• Core CPI m/m +0.5% versus +0.1% last month
• Core CPI y/y +2.5% versus 2.2% last month
• CPI Median y/y 3.2% versus 2.9% estimate. Last month 2.9%
• CPI Trim 3.1% versus 2.9% expected Last month 2.8%
• CPI Common 2.5% versus 2.3% last month

The quirk in Canadian CPI data is that there was a GST (Canada’s VAT) holiday that ended on Feb 15 and that has been reverberating, followed by the removal of the carbon tax on April 1, lowering gasoline prices. That contributed to an 18.1% y/y decline in gasoline prices with natural gas prices down 14.1%.

The market was pricing in a 65% chance of a BOC rate cut in early June ahead of this data but that’s quickly back to 51%. These core numbers are uncomfortably hot and may represent some trade war pass-thru.

One source of inflation was in food with grocery stores up 3.8% y/y and restaurant prices up 3.6%.

USD/CAD has quickly fallen to 1.3935 from 1.3960 on the headlines.

This article was written by Adam Button at www.forexlive.com.

The RBA cut rate earlier today and the market is sensing that the Bank of Canada will continue to do the same. Their next meeting is June 4 and market pricing is now at 65% for a cut.

A big swing in that could come at the bottom of the hour with Canadian inflation data via the CPI report for April. The consensus is for a 0.2% m/m decline on the headline to knock the y/y all the way to 1.6% from 2.3%. What could keep the BOC sidelined is hotter core number with the median measure expected steady at 2.9% and trim forecast to tick up to 2.9% from 2.8%.

This article was written by Adam Button at www.forexlive.com.

• The PBoC reiterates implementation of loose monetary policy

• What are the current interest rates expectations for the major central banks?
• ECB’s Knot: Mid-term inflation outlook too uncertain to say whether we need a June cut
• More from BoE’s Pill: We should not be dependent on how data turns out
• Japan mulls accepting US tariff reduction, not exemption – Kyodo
• Iran’s Supreme Leader Khamenei: I don’t think nuclear talks with the US will be successful
• BoE’s Pill: Vote against interest rate cut was a ‘skip’ within a continuing withdrawal
• BoJ: Some members said JGB market functionality improving as a trend due to BoJ’s taper
• ECB’s Schnabel: Disinflation is on track, but new shocks are posing new challenges
• Germany April PPI -0.6% vs -0.3% m/m expected
• RBA Governor Bullock: Did discuss 25 bps or 50 bps cut
• RBA Governor Bullock: Must now keep inflation down, well placed to do so
• RBA lowers the cash rate target to 3.85% vs 4.10% prior as widely expected

It’s been another light session in terms of data and news releases. The only highlight was the RBA policy decision where the central bank cut interest rates by 25 bps as expected and lowered growth and inflation forecasts.

The AUD fell initially on the dovish forecasts but eventually bounced back. The Aussie dollar couldn’t sustain the pressure though after RBA’s Governor Bullock mentioned that they debated between a 25 and 50 bps cut. That sent the AUD to new lows and the market increased the easing expectations for 2025.

Elsewhere, we got some ECB speakers that are now starting to change their tone around the need for further cuts. The hawks are particularly wary of overdoing it on rate cuts and not reach their inflation target on a sustained basis.

In the American session, we have the Canadian CPI
report where the Trimmed Mean Y/Y is expected at 2.9% vs. 2.8% prior and
the Median Y/Y is seen at 2.9% vs. 2.9% prior. The market is pricing a
62% chance of a 25 bps cut at the upcoming meeting and a total of 47 bps
of easing by year-end. A higher than expected reading could see the
market price out a rate cut at the upcoming meeting.

We
will also have some more Fedspeak and the focus will be on potential
hawkish comments as the market is now back at pricing just two rate cuts
in 2025. From now on, we will either price in more cuts or less cuts
than expected and that will move markets.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Will meet real economy’s financing needs.
• Will maintain reason growth of financial aggregates.
• Will increase efforts to support sci-tech innovation, boost consumption.
• Will support private economy, stabilise foreign trade.
• Will made good use of existing and incremental policies.
• Will strengthen monetary policy implmentation and transmission.
• Will promote international use of yuan.
• Will ‘resolutely’ safeguard national financial security.

I don’t see anything new here. We got some rate cuts recently and that certainly gives some support to the economy, but I would like them to go bigger on rate cuts given that they still have positive real rates amid deflationary forces.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Fed: 54 bps (91% probability of no change at the upcoming meeting)
• ECB: 52 bps (93% probability of rate cut at the upcoming meeting)
• BoE: 45 bps (84% probability of no change at the upcoming meeting)
• BoC: 47 bps (64% probability of rate cut at the upcoming meeting)
• RBA: 73 bps (56% probability of rate cut at the upcoming meeting)
• RBNZ: 58 bps (82% probability of rate cut at the upcoming meeting)
• SNB: 47 bps (81% probability of rate cut at the upcoming meeting)

*for the SNB, the rest of the probability is for a 50 bps cut

Rate hikes by year-end

• BoJ: 17 bps (98% probability of no change at the upcoming meeting)

The pricing remained roughly unchanged for most central banks except the RBA where we saw a more dovish repricing after Governor Bullock’s 50 bps comment today (it was 57 bps before that comment).

We are now at a point where the market got back to previous expectations and from now on we will need stronger reasons to price out the rate cuts. That will obviously move the markets. Of course the same is true for pricing in more rate cuts than currently expected.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Mid-term inflation outlook too uncertain to say whether we need a June cut.
• ECB projections likely to show lower inflation this year and the next, but longer term is uncertain.

I personally think the ECB shouldn’t cut in June and pause now to see how things evolve. There’s a scenario where they might have already over-eased and could struggle to bring inflation sustainably back to target.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Japan economy minister Akazawa:

• Japan, U.S. conducted working-level talks on bilateral trade in Washington DC on Monday
• no change to Tokyo’s stance of demanding an elimination of U.S. tariffs in bilateral trade negotiations
• schedule for a third round of ministerial-level negotiations was yet to be fixed

I mentioned yesterday that the election in Japan in July is going to be an issue for trade talks. Adam followed up on this Monday:

• More signs that the US-Japan trade agreement is on ice

ps. Thats Akazawa in the hat

This article was written by Eamonn Sheridan at www.forexlive.com.

• Japan mulls accepting US tariff reduction, not exemption.

Kyodo News is reporting the Japan is considering accepting a reduction in tariffs and not pushing too much for exemptions. The aim is to break through the stagnation in US-Japan trade talks.

Japan’s top trade negotiator, Ryosei Akazawa, could travel to Washington
as soon as next week for a third round of trade talks with the U.S.

Click here for the article

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• We should not be dependent on how data turns out.
• We can’t assume that inflation pain of new economic shocks will go away.
• I agree with the MPC view that there is an easing in the labour market, question is about the pace.
• Some key pay indicators remain quite strong.

I think he’s suggesting that central bankers need to also have some forward looking thinking and not get too fixated on lagging indicators like inflation and employment.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• I don’t think nuclear talks with the US will be successful.

This headline gave crude oil prices a boost as the markets continue to bounce around amid the US-Iran nuclear deal. A positive resolution is seen as bearish (at least in the near term) due to higher supply expectations. Conversely, negative outcomes are seen as bullish.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Vote against interest rate cut was a ‘skip’ within a continuing withdrawal of monetary policy restriction.
• Inflation pressure indicators give me cause for concern.
• Quarterly pace of 25 bps cuts seen since last summer is too rapid given the inflation outlook.
• My dissenting vote was favouring a ‘skip’ in the quarterly pattern of bank rate cuts.
• It should not be seen as favouring a halt to withdrawal of restriction.
• Structural changes in price and wage setting behaviour have increased the intrinsic persistence of the UK inflation process.
• Pace of quarterly cuts too rapid given the balance of risks to price stability we face.
• Believes that the underlying disinflation process remains intact.
• Prospective path of bank rate from here is downward.
• My dissent from that decision does not reflect a fundamental difference with the committee majority.
• We now need cautious cuts.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

There was so much noise over the weekend and yesterday about the Moody’s downgrade with even some doomsday scenarios. I’ve argued (here) that it was no big deal and just a symbolic thing.

If you look at the US30Y chart now, the market erased the entire rise and we are basically back to where we were before the downgrade. We can now go back to focus on what really matters, which is future Fed policy and inflation expectations.

As I mentioned here,
there’s limited downside at the moment for yields and the path of least
resistance remains to the upside as inflation risk increases. In fact,
as we now price in better and better conditions for growth, the economic
activity will
likely start to accelerate and that could lead to inflationary
pressures.

The Fed is also in a difficult position because rate cuts now
could exacerbate inflation fears and drive long term yields even
higher. That’s what will drive the bond market in the next months.

This article was written by Giuseppe Dellamotta at www.forexlive.com.