The Canadian dollar (CAD or loonie) is the worst-performing G10 currency this week, followed by the yen (JPY) and the Australian dollar (AUD), said MUFG.
On Thursday, front-end yields in Australia fell by close to 10bps on weaker-than-expected employment data -- the OIS market shows pricing for the next Reserve Bank of Australia hike has been pushed back to November, noted MUFG.
Front-end yields are also lower in Canada following a weaker-than-expected consumer price index print for April, writes the bank in a note to clients. That data on Tuesday was followed by a weaker CPI print in the United Kingdom that triggered a notable rally in the Gilt market.
The weak inflation theme continued on Friday in Japan with the nationwide CPI data weaker than expected, pointed out MUFG. The core-core CPI year-over-year rate fell from 2.4% to 1.9% in April, the weakest annual rate since September 2023. It was the biggest drop in one month since April 2021 and will raise doubts over the necessity of the Bank of Japan raising rates in June.
Yields are only modestly softer in Japan, and MUFG doesn't expect this print to alter the prospects of a BoJ rate hike. Much of the drop is base-effect related and given the level of the policy rate balanced against the risk from energy prices and the instability in the Japanese government bond market, the bank sees the case for hiking as still very compelling.