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BoC's April meeting summary revealed a "diversity of views" among its members concerning the timing of the first interest rate cut. Despite differing opinions, there was a unanimous agreement that any adjustment to monetary policy would "probably be gradual" once initiated.

Key concerns highlighted by some board members included the need for "more reassurance" regarding the diminishing risks associated with stalling of progress on slowing core inflation. These members observed that the Canadian economy is "performing well", mitigating the risk that the current restrictive monetary policy could excessively decelerate economic activity. However, they cautioned that stronger domestic demand, alongside robust economic growth in the US, "keep core inflation from slowing further" or might even cause it to "pick up again in the event of new surprises".

Conversely, other members argued that there is a tangible risk of maintaining a monetary policy that is "more restrictive than needed." This group emphasized the significant progress already achieved in reducing inflation, noting that the rates of inflation across most goods and services had "come down significantly," and the distribution of inflation rates among the CPI components had begun to "approach normal."

Despite these differing perspectives, the consensus was clear that any forthcoming policy easing would be implemented cautiously. "While there was a diversity of views about when conditions would likely warrant cutting the policy rate, they agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target," the summary stated.

Full BoC summary of deliberations here.

• EURGBP reversed from resistance level 0.8625
• Likely to fall to support level 0.8550

EURGBP currency pair recently reversed down from the key resistance level 0.8625, which has been reversing the price from January, intersecting with the 50% Fibonacci correction of the previous downward impulse from November.

The downward reversal from the resistance level 0.8625 created the daily Japanese candlesticks reversal pattern Bearish Engulfing

Give the predominant daily downtrend and the bearish euro sentiment seen today, EURGBP currency pair can be expected to fall further to the next support level 0.8550.

• EURJPY under bullish pressure
• Likely to rise to resistance level 167.00

EURJPY currency pair under the bullish pressure after the price broke through the key resistance level 165.00, which has been reversing the price from March.

The breakout of the resistance level 165.00 accelerated the active impulse waves iii, 3 and (5).

Give the strength of the active uptrend and the continuation of the yen outflows, EURJPY currency pair can be expected to rise further to the next resistance level 167.00 (target price for the completion of the active impulse wave 3).

Markets

Core bonds lost ground with German Bunds underperforming US Treasuries today. It would be unfair to link the former exclusively to the better-than-expected German Ifo indicator but it did support yields moving higher. The headline series improved from 87.9 to 89.4 with an increase in current conditions (88.9) but especially in the expectations component (87.7 to 89.9, the highest since April last year). The Ifo brought a similar “there’s light at the end of the tunnel” message as yesterday’s PMIs with the same distinction being made in the ailing (but with improving prospects) manufacturing sector and the services sector as the current stronghold. German yields add between 3.7 and 7.1 bps. We suspect the technical charts offered some help too with the long end moving beyond the precious YtD highs to hit new ones. The 10-y tenor is fast approaching the 2.6% resistance area (62% recovery on the 2023Q4 decline). US yields recover a good part from the PMI-induced losses yesterday. The long end underperforms with the likes of the 10y yield adding about 4.5 bps. Shorter maturities rise 1.5 bps. US data today included durable goods orders which printed bang or near in line with consensus. The headline series jumped 2.6% on the back of firmer commercial aircraft and defense-related orders. Core gauges, including the one used in calculating the investment component in GDP readings, printed at 0.2%.

The Australian dollar outperforms in the G10 currency landscape today. Higher-than-expected Q1 inflation numbers released this morning question the Reserve Bank of Australia’s capacity to cut rates already this year. The market implied probability dropped from 93% to 46%, pushing Australian yields and the currency higher. AUD/USD appreciated to 0.653 but met with though resistance from the 200dMA there. The pair is currently trading back below 0.65. The US dollar trades with a minor strengthening bias. EUR/USD turned just south of 1.07, DXY ekes out a gain to 105.84. USD/JPY hit an intraday high of 155.17 – a new 34y high – but quickly swung back sub 155 again as fears linger further JPY deprecation this time may actually spark FX interventions by Japanese officials.

News & Views

Czech confidence improved both amongst consumer and among businesses. The composite indicator rose from 94.2 to 97, the best level since April 2023. Business confidence improved from 93 to 95.6 with solid increases in industry and selected services. Sentiment deteriorated in construction and (slightly) in trade. Consumer confidence increased for the fourth time in a row to 103.8. The number of respondents expecting a deterioration in the overall economic situation in the next twelve months decreased and less consumers assess their current financial situation worse than in the previous twelve months. The number of respondents expecting a deterioration in their financial situation in the next twelve months is unchanged. The share believing that the current time is not suitable for making major purchases was unchanged compared to the previous month. Better activity data and a cautious easing policy by the Czech national bank (CNB) for now only provided limited support for the koruna. EUR/CZK is trading near 25.25, still not that far from the lows recorded in February (25.51) and (25.44) earlier this month.

After rising for two consecutive months, the monthly business confidence indicator of the National Bank of Belgium fell in April. The noticeable rise in confidence seen in manufacturing in March has taken a big hit this month. The loss of confidence was mainly due to a significantly less encouraging assessment of stock levels and a sharp downward revision of demand expectations. Employment expectations were also downgraded, but to a much lesser extent. Confidence also weakened in the business-related services sector, albeit to a lesser extent. In the building industry and trade, the indicator is essentially holding steady. Despite the setback in April, the indicator of the underlying economic trend continues to rise slightly. The capacity utilization rate in the manufacturing industry marginally decreased quarter-on-quarter, from 74.4% in January 2024 to 73.8% in April 2024.

Graphs

AUD/USD: Aussie dollar extends recent recovery on stronger-than-expected Q1 inflation figures

European 10y swap yield pushes through to new year-to-date high as evidence of economy bottoming out grows

EUR/CZK: Czech crown not impressed by improving soft and hard economic data and restrained monetary easing

Nasdaq leaves correction mode for now after finding support at the start of the week

Retail sales declined by 0.1% month-on-month (m/m) in February, coming in weaker than Statistics Canada's advance estimate for a 0.1% gain. January's print was unchanged at -0.3% m/m.

Adjusted for inflation, the volume of retail sales was down 0.3% in January after two months of gains.

Sales at motor vehicle and parts dealers rose by 0.5%, erasing some of last month's losses. According to industry estimates, March is trending positive for auto sales.

Sales at gas stations were down 2.2% m/m despite higher prices at the pump.

Excluding auto sales and receipts at gas stations, core retail sales were flat on the month. In volume terms, receipts at gas stations were down by 3.9%.

• The biggest losses were reported at electronics and appliance stores (-2.8% m/m) and clothing and clothing accessories stores (-1.0% m/m).
• Offsetting these losses were gains at general merchandise stores (+1.1% m/m).

E-commerce sales (not included in the headline tally) were up 1.9% m/m in February.

Statistics Canada's advance reading suggests that retail sales were unchanged in March (with almost 62% of companies surveyed providing responses).

Key Implications

Today's decline in retail sales for February was more widespread than what we saw in January, reflecting weaker-than-expected performance in core measures and underscoring the challenges facing consumers amid rising costs of living and financing.  Despite the overall softness, auto sales emerged as a bright spot, demonstrating their usual roly-poly resilience by bouncing from the previous month's decline. In addition, our internal credit and debit spend data point to an expansion in both goods and services spending in March, keeping our real consumption tracking in the range of 2.8% to 3.0% for the first quarter of 2024.

Relatively solid spending momentum has been supported by a still-sizeable excess deposits, robust population growth and a wealth effect. However, with the labour market losing steam, income growth is likely to moderate, dictating a slower pace of spending. .

The Australian dollar has edged higher on Wednesday. In the European session, AUD/USD is trading at 0.6504, up 0.27%. The Australian dollar rose as high as 0.6529 (0.64%) after the Australian inflation release but has pared about half of those gains.

Australia’s inflation dips less than forecast

Australia’s inflation rate slowed less than expected in the first quarter. Inflation rose 3.6% y/y in Q1, down sharply from 4.1% in the fourth quarter but above the market estimate of 3.4%. This was the lowest rate since Q4 2024 and the drop was widespread across most components of inflation.

Inflation accelerated in March on a quarterly basis (0.6% to 1%) and monthly (3.4% to 3.5%), as services inflation remains sticky. A key core inflation indicator, the trimmed mean, accelerated to 1% q/q, above the market estimate of 0.8%. Annually, the trimmed mean slowed to 4%, down from 4.2%.

The inflation numbers were higher than what the market was expecting and the Reserve Bank of Australia will be concerned, in particular with the 1% rise in the trimmed mean. The markets pared the probability of a rate cut in May to 3% after the inflation report and have not fully priced a quarter-point drop until February 2025.

The RBA is likely done with its rate-tightening cycle, which has boosted the cash rate to 4.25%, but has paused three straight times. The central bank has shown it can be patient and is unlikely to lower rates until underlying inflation eases and the tight labor market shows signs of cracks.

AUD/USD Technical

• AUD/USD tested support at 0.6487 earlier. Below, there is support at 0.6424
• 0.6555 and 0.6618 are the next resistance lines

Daily Pivots: (S1) 1.2368; (P) 1.2414; (R1) 1.2495; More...

No change in GBP/USD's outlook and intraday bias stays neutral. While recovery from 1.2298 might extend higher, upside should be limited by 1.2538 support turned resistance. On the downside, below 1.2298 will resume the fall from 1.2892 to 1.2036 support next.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Daily Pivots: (S1) 0.9093; (P) 0.9113; (R1) 0.9138; More....

Intraday bias in USD/CHF remains neutral and outlook is unchanged. Further rally is expected as long as 0.8996 support holds. Break of 0.9151 will resume the larger rise from 0.8332 to 0.9243 resistance. However, firm break of 0.8996 will turn bias to the downside for 55 D EMA (now at 0.8953).

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8728 support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish.

Daily Pivots: (S1) 154.63; (P) 154.76; (R1) 154.95; More...

Outlook in USD/JPY is unchanged and intraday bias remains mildly on the upside for further rally. However, considering bearish divergence condition in 4H MACD, strong resistance should be seen from 155.20 fibonacci level to bring correction on first attempt. On the downside, break of 153.58 support will turn bias to the downside, for deeper pull back to 55 D EMA (now at 151.11).

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20. Outlook will remain bullish as long as 146.47 support holds, even in case of deep pullback.