Summary: The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value relative a basket of 6 major currencies ended slightly weaker in choppy trade. USD/DXY dipped to 99.979 from 100.058. Ahead of key data releases today, the Federal Reserve meeting, and upcoming month-end, FX moves were inconclusive. Commodity cousins, the Australian and New Zealand Dollars extended their gains are both countries began opening their economies successfully taming Covid-19. The Aussie was up 0.64% in late New York at 0.6492 after hitting 7-week highs at 0.65138 overnight. The Kiwi finished 0.44% higher at 0.6061 (0.6044). The Euro erased gains after trading to an overnight high at 1.08885, ending little-changed at 1.0822 (1.0825). Ratings agency Fitch cut Italy’s credit rating to BBB-, one notch above “junk” status. The Dollar eased 0.25% against the Yen to 106.87 from 107.27, as month-end rebalancing demand boosted the Japanese currency. Sterling finished flat at 1.2425. Against the Canadian Loonie, the Dollar closed 0.31% lower to 1.3995 (1.4045) as Oil prices steadied after another highly volatile session. Wall Street stocks erased gains after a slew of mixed corporate earnings. The Dow shed 0.1% to 24,102 (24,122). The S&P 500 lost 0.3% to 2,864 (2,877). Bond yields slipped with the key US 10-year rate closing at 0.61% (0.66%).
Japan’s Unemployment rate was unchanged at 2.5%, matching forecasts. The Bank of Japan’s CPI measure for the country slipped to 0.1% from 0.2%. The UK Conference Board’s April Realised Sales slumped to -55, underwhelming forecasts at -45 and the previous month’s -3. US April Trade deficit blew out to -USD 64.26 billion from -USD 59.9 billion. The US Conference Board Consumer Confidence Index weakened significantly to 86.9 in April from a downwardly revised 118.8 (from 120.0), missing expectations of 88.3.
On the coronavirus front, US cases passed the 1 million mark while deaths topped the 58,220 lives lost in the Vietnam War, according to a Bloomberg report. The daily death toll in New York though dipped to 335 slightly below the previous day with the state appearing to have hit a peak.
On the Lookout: Today sees the release of several key reports, all of which can move FX. Expect consolidation into these numbers in what will likely be another highly volatile session. Japanese markets are closed in observance of Showa Day.
New Zealand’s April Trade Balance just released saw its Surplus ease to +NZD 672 million from March’s downwardly revised +NZD 531 million (from +NZD 594 million) and missing forecasts of +NZD 700 million. NZD/USD was little changed at 0.6060 following the release.
Australia reports it 202 Q1 Headline and Trimmed Mean CPI report, both forecast to ease slightly.
Euro area data kicks of with Germany’s Import Prices, and Preliminary CPI reports. Switzerland releases its Credit Suisse Economic Expectations. US reports finish off the day with Advance Q1 GDP and GDP Price Index and Pending Home Sales.
The big event is the Federal Reserve’s interest rate meeting and press conference (4.30 am Sydney time, 30 April). The Fed meeting and rate announcement will come after the release of Q1 GDP. The Fed is widely expected to leave interest rates unchanged. Markets will focus on what the Fed expects from the economy this year. How Jerome Powell assesses the contraction and what he emphasises.
Trading Perspective: The month-end rebalancing needs saw demand for currencies which weighed on the US Dollar. Much of this demand has been satisfied and the spotlight is now on the data and FOMC statement. Expectations are for downbeat US data and FOMC. Market positioning is also short US Dollars into today’s reports. Market positioning will be a factor in today’s trade. The risk is for a setback in the broadly weaker US Dollar sentiment.
AUD/USD – Stay on Front Foot, But Risks Setback, 0.6380-0.6520 Likely
The Australian Dollar extended its advance, finishing as best-performing major against the Greenback for the second day running. AUD/USD traded to a fresh seven-week and overnight high at 0.65138 before easing to settle at 0.6494 in late New York (0.6460 yesterday). The Aussie has had a good run this week after Scott Morrison’s government began opening-up the economy yesterday. Australia is seen as one of the more successful countries in its fight to control the coronavirus outbreak. Together with New Zealand, both countries immediately closed their borders before the World Health Organisation declared Covid-19 a pandemic.
The broadly based weaker US Dollar has also supported the Aussie and commodity currencies (Kiwi, Loonie). Expectations for key data releases today are for a much weaker US GDP report and a relatively stable Australian CPI. Which are both Aussie bullish, but risk disappointment. Today’s headlines focus on Australia’s call for a global inquiry into the origins and propagation of Covid-19 which has been strongly disputed by China. Sky news reports that Australian Treasure Josh Frydenberg said “Australia will not bow to economic coercion.” Which could weigh on the Aussie and risk a setback.
AUD/USD has immediate resistance at 0.6520 followed by 0.6550. Strong resistance can be found at 0.6600. Immediate support can be found at 0.6460 followed by 0.6420. Look to trade from the short side with a likely 0.6380-0.6520 range today.
EUR/USD – Rebound on Weak USD Unable to Break 1.0900, Risks Lower
The Euro came close to the 1.0900 resistance level in overnight trade, falling just short, recording at 1.09885 high before falling to close little changed at 1.0822 (1.0827 yesterday). The shared currency has lagged the other majors against the broad-based US Dollar weakness. Overnight trade saw some rebalancing demand for the Euro ahead of the month end. EUR/USD had a choppy session with the overnight low traded at 1.08097.
Into Thursday’s Eurozone GDP report and ECB rates policy meeting, expect the shared currency to continue its underperformance. Long Euro market positioning is also weighing on the Euro. We reported earlier this week that net speculative Euro long bets saw a slight increase to total +EUR 87,218 contracts from the previous week’s +86,617. This is the biggest number of long Euro contracts since June 2018.
EUR/USD has immediate resistance at 1.0900 followed by 1.0950. Immediate support can be found at 1.0800 followed by 1.0770. Look to sell rallies in a likely 1.0790-1.0890 range today.
USD/CAD – Lower as Oil Steadies, Spotlight on CAD GDP – 1.3950-1.4150
Against the Loonie, the US Dollar retreated to 1.3995 New York close from 1.4045 yesterday. Broad based US Dollar weakness and a stabilising Oil prices supported the Canadian Dollar. Brent Crude Oil prices steadied, finishing up 4.05% at USD 21.00. The US West Texas Intermediate (WTI) oil prices erased majority of its losses. USD/CAD saw an overnight low of 1.3936 in highly volatile trade before rebounding in late New York. Overnight high for the USD/CAD pair was seen earlier in Asia at 1.40727.
Apart from the US data and Fed meeting, the spotlight this week for the Loonie is Canada’s February GDP report due on Thursday. Expectations are for an improvement in Q1 to 0.2% from 0.1%. The coronavirus outbreak had not yet impacted the global economy at the time. Still the risk is for a disappointment in the report.
USD/CAD has immediate resistance at 1.4020, 1.4070 and 1.4150. Immediate support is found at 1.3960 and 1.3920. Look to buy dips today with a likely range of 1.3970-1.4120.
