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Talking Points:

• NZ Dollar drops on Fonterra outlook, Canadian Dollar gains on BOC

• British Pound may look past UK GDP revision with Brexit vote in focus

• US Dollar may resume rally after pullback as Fed rate hike bets swell

The New Zealand Dollar underperformed in overnight trade. Prices slumped alongside three-month borrowing costs, pointing to swelling RBNZ rate cut bets as the catalyst for the selloff. The move followed a disappointing 2016-17 milk price forecast from Fonterra (NZ$4.25/Kg versus NZ$4.60-80 expected). Dairy is New Zealand’s largest export sector and cross-border sales are a major contributor to GDP for the island nation, so the announcement carried negative implications for growth and thereby opened the door for a more dovish monetary policy stance.

The US Dollar traded broadly lower as Fed rate hike bets cooled after the year-end forecast implied in futures pricing hit a two-month high in the prior session. The correction seems to have been helped along by disappointing US Markit PMI figures. The Canadian Dollar extended gains following the BOC rate decision. The central bank hinted that recent weakness will be transitory, with a slump in the second quarter to be followed by a swift recovery thereafter. This undermined on-coming easing bets, with the currency tracking front-end bond yields upward.

A revised set of first-quarter UK GDP figures headlines the economic calendar in European hours, with confirmation of the flash estimate pointing to a 0.4 percent increase expected. The release seems unlikely to command significant attention from the British Pound absent a wild deviation from forecasts as markets remain pre-occupied with the “Brexit” referendum due next month. In fact, a downward revision may actually boost the UK unit if it suggests worries about the vote are already hurting growth, playing into the “Remain” campaign’s narrative.

Later in the day, Fed rate hike speculation returns to the spotlight. Tightening bets may build anew if April’s Durable Goods Orders data outperforms, extending a two-week stretch of improvement in US data outcomes relative to expectations. Comments from Governor Jerome Powell mirroring the recent hawkish pivot in Fed rhetoric would probably encourage this dynamic, particularly considering that members of the Governing Board have tended to be more dovish than regional branch presidents. The greenback is likely to stage a broad-based advance in this scenario.

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Asia Session

European Session