Europe is one of the primary areas where the spillover from the Brexit will occur.  Uncertainty should drive financial market weakness and likely lead to further capital outflows, prompting further easing from the ECB.  Additional downside risk if more EU countries call for referendums.  Expect a downward trend through the end of the year.



Brexit, Brexit, Brexit.  Political uncertainty surrounding who will lead the UK, possible Scottish referendum, and uncertainty surrounding the post Brexit business landscape should hit economic confidence and lead to economic underperformance and lower foreign direct investment.  The BoE has signaled expectations for stimulus over the summer, further weakening the GBP.



Economic uncertainty from the Brexit vote combined with headwinds against that Canadian economy most likely pushed any potential rate hike into the future.  The CAD had been supported by a rally in oil prices but further rises in prices appear limited in the short term.  Safe haven flows will favor the larger and more liquid USD.



The yen remains one of currencies most positively correlated to risk aversion.  With the Brexit vote setting off another round of risk aversion, the yen has seen Brexit related inflows.  A stronger yen exacerbates the BoJ's inability to reach its inflation target and raises the probability of a BoJ response; however the BoJ's ability to influence the fx market appears to be diminished.



Weak global risk global risk sentiment and the possibility of more easing should weight on the AUD.  Commodity prices and recent Chinese data indicating that the Chinese economy may be stabilizing provide support for the AUD. 

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of City National Bank as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate fluctuations, political and economic risks, and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.