Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD lower as volatility rises
The greenback extended losses overnight as volatility climbed from recent lows amid concern the US Federal Reserve might not be able to cut interest rates when it meets in June.
US Federal Reserve chair Jerome Powell tried to hold the line overnight, saying: “Recent data do not…materially change the overall picture.”
Markets seem to doubt the Fed chair, however. The US ten-year-bond yield hit a four-month high before later reversing. US shares were mixed but the benchmark Dow Jones index fell for the third-straight day.
The US dollar was mostly weaker with the Aussie and kiwi leading the gains.
The AUD/USD gained 0.7% while the NZD/USD climbed 0.6%.
China’s manufacturing rebounds, but profit growth cools
The Chinese manufacturing sector showed promising signs of recovery this week, with the NBS PMI rising above 50 (black line shown in the above chart), signaling expansion after months of contraction.
This improvement was driven by a post-Chinese New Year rebound in new orders, production, and input purchases, particularly benefiting small firms.
The non-manufacturing PMI also climbed, reflecting growth in services and construction. However, industrial profit growth moderated in the first two months, despite a low base effect, due to slower margin expansion, even as revenue growth picked up modestly.
We remain broadly negative on the Chinese yuan with sluggish economic growth likely to weigh on the currency.
European inflation eases
Eurozone inflation came in below expectations overnight, with headline annual CPI at 2.4% versus 2.5% expected, but FX markets were more focused on USD weakness, helping the EUR/USD to gain 0.6% overnight.
Looking forward, we have more European inflation numbers, with Swiss inflation due.
In Switzerland, for March, we’re looking for 1.2% year-over-year CPI inflation for both headline and core inflation.
As a result, the Q1 CPI inflation quarterly average would drop to 1.2%, below the SNB’s most recent meeting prediction, illustrating why the Swiss National Bank was able to cut interest rates last month.
Aussie stronger across markets
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 1 – 5 April
All times AEDT
*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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