Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD losses mostly continue, but USD/JPY rebounds
The greenback was mostly lower on Monday as markets digested last week’s disappointing US jobs number – the first time non-farm employment has missed forecasts since the October 2023 report.
The combination of the weaker jobs number and Thursday’s Federal Reserve announcement – which was largely sanguine on the risk of inflation – has caused the USD index to fall from the six-month highs seen last week.
The Aussie again led the gains with the AUD/USD up 0.2% ahead of today’s key Reserve Bank of Australia decision.
The NZD/USD was flat after the strong improvement seen on Friday.
In Europe, the euro and British pound saw smaller gains.
It was a different story in Aisa, however, with the US dollar regaining some of last week’s intervention-driven losses. The Bank of Japan is suspected to have intervened to lower the USD/JPY twice last week.
The USD/JPY jumped 0.6% while the USD/SGD climbed from one-month lows and the USD/CNH bounced from four-month lows.
RBA faces inflation headache
With the cash rate staying at 4.35% and passive quantitative tightening continuing, we do not anticipate any changes to RBA policy when today’s decision is announced at 2.30pm AEST.
However, in light of recent labor market and CPI statistics, we do anticipate a shift in communication back toward hawkishness. Last meeting, the RBA turned more neutral, saying it was “unwilling to rule out a move either higher or lower.”
This shift in tone should be reflected in updated forecasts, which are expected to adjust for higher CPI inflation and lower near-term unemployment estimates.
The RBA should be most noticeable, in our opinion, for its modifications to its 2024 predictions, with minor revisions to its 2025 forecasts and negligible revisions to its 2026 estimate, which still calls for inflation to remain within the target range of 2-3%. Although policy guidance is expected to maintain the possibility of rate hikes, we still believe that rate cuts are more likely starting in November.
We believe that in the upcoming months, markets will view RBA policy as likely to remain tight due to resilience in the activity statistics and sticky inflation, with widening AU-US rate differentials supporting the local currency.
PHP stronger ahead of CPI
The impact of the Bank of Japan’s intervention across FX markets has also weighed on the USD/PHP with pair lower as the Philippines peso strengthened, rebounding from 18-month lows over the last week.
We anticipate additional increases in CPI inflation in April, from 3.7% in March to 4.1% y-o-y. This is due to the continued high price of food, especially rice, and the rising cost of gasoline as a result of rising global crude oil prices.
We anticipate that core inflation will stay steady at 3.3% year over year, in line with demand-side circumstances.
Over the medium term, the PHP might resume weakness, with the Philippine trade deficit likely to worsen, especially as infrastructure investment increases; and growing local demand for foreign exchange reserves.
USD/CNH, USD/SGD rebound from lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 29 April – 3 May
All times AEST
*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.
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