Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback jumps to one-month highs
US shares and the US dollar were higher on Thursday as market hopes for good news on trade boosted sentiment.
The US’s Dow Jones and S&P 500 both gained 0.6% while the tech-focused Nasdaq gained 1.1%.
US President Donald Trump said yesterday that he expected “substantive” reduction in Chinese tariffs and highlighted a UK-US trade deal and an example of the benefits of his tariff policies.
In FX markets, the US dollar, as measured by the USD index, hit a one-month high with a 1.0% gain. The AUD/USD and NZD/USD both fell back to one-week lows.
USD boosted as Powell holds the line
The US dollar was also helped by Wednesday’s policy decision from the US Federal Reserve.
The Fed unanimously decided to maintain the benchmark federal funds rate at 4.25% to 4.5%. Perhaps a little more hawkish than anticipated, Chair Powell’s address focused on the mounting dangers of inflation and unemployment.
A “wait-and-see” message was undoubtedly conveyed, and the Fed will have to wait for further information before deciding on the best course of action.
The three Fed cuts planned for the year might be jeopardized if inflationary pressures increase.
Looking at APAC FX, USD/SGD has started to tick back up to test the next key resistance levels.
First barrier will be 21-day EMA of 1.3087, followed by 50-day EMA of 1.3219, and USD buyers may look to take advantage now.
Aussie lower despite RBA’s expected caution
Despite the Reserve Bank of Australia’s commentary that it remains uncertain about future moves on policy, the Australian market is still pricing in four cuts over the next five meetings.
We think the RBA will maintain its tough stance at the May meeting, giving a 25-basis point cut but demonstrating no haste to further lower rates, given that the Fed was content to be patient and not preemptive overnight.
While the RBA’s stance can provide some support for the AUD, trade news will remain the major driver.
The Aussie has drifted lower this week. The AUD/USD turned sharply from five-month highs above 0.6500 while AUD/EUR fell from one-month highs.
USD highest in a month
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 10 May
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
