Brexit Votes May Distract From Global Slowdown Worries

TALKING POINTS – YEN, US DOLLAR, NEW ZEALAND DOLLAR, BREXIT

• Yen, US Dollar rise as dovish RBNZ stokes global growth fears

• ECBs Draghi may amplify worries with downbeat commentary

• Brexit votes may delay conviction on sentiment-driven volatility

The anti-risk Japanese Yen and US Dollar rose after the RBNZ became the latest in a series of major central banks to warn about a darkening outlook for global economic growth. The New Zealand Dollar was understandably hurt by dovish commentary from its local monetary authority, but the sentiment-linked Australian Dollar also weakened, likely reflecting broader risk-off flows.

Looking ahead, scheduled commentary from ECB President Mario Draghi may add to slowdown worries. A downbeat disposition was already on display at this month‘s policy announcement, so more of the same would not be a stretch. Capacity for follow-through will probably be determined by the degree to which Mr Draghi’s remarks dial up the sense of urgency.

With that in mind, directional conviction on any broad sentiment-directed will probably have to wait for the outcome of a series of “indicative votes” on the future path for Brexit. MPs are attempting to wrestle control of the process from Prime Minister Theresa May and will voice their preference for a variety of competing options for EU withdrawal terms and perhaps even consider a second referendum.

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CHART OF THE DAY – DOVISH RBNZ SPARKS DEMAND FOR ANTI-RISK CURRENCIES

The chart above tracks the intraday reaction to the dovish RBNZ monetary policy announcement. The sharp drop in the Kiwi Dollar play out inversely of a rise in the average value of the US Dollar and Yen against their major currency counterparts. Tellingly, the averages do not include the NZD, implying that these moves reflected broader haven-seeking capital flows.