Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie stuck below key resistance
FX markets remained quieter overnight, but the lower volatility is not expected to last with key data from Europe and the US due over the next 48 hours.
The US dollar eased and the euro gained overnight with the EUR/USD at one-month highs ahead of key German data.
The Japanese yen continued to weaken, the USD/JPY gained 0.1%, while USD/CNH was also higher. The USD/SGD fell.
The AUD/USD inched higher, up 0.1%, but continues to see strong resistance around 0.6650.
The kiwi was weaker after yesterday’s two-year inflation expectations data fell from 2.50% to 2.33% — providing further opportunity for the Reserve Bank of New Zealand to cut.
Euro stuck in tug-of-war
The euro has recently been caught in a tug-of-war with the battle between policy divergence, likely to see the European Central Bank cut before the Federal Reserve and is bearish for EUR, while the Europe-wide growth rebound is more bullish for the euro.
This uncertainty has kept the EUR/USD in a clear trading range broadly between 1.0600 and 1.1000.
Globally, the picture has also been mixed. The euro has been weaker in some markets, with the AUD/EUR recently at four-month highs, while the single currency has been much stronger in Asia, with the EUR/SGD near eight-month highs.
Tonight, German inflation and consumer sentiment are due. According to the newly released German Sentix poll, we’re looking for an improvement in the German ZEW for May.
Although expectations are projected to increase by 2.7 points to 45.6, present circumstances are expected to improve by 3.2 points to -76.
US PPI heralds inflation numbers
Away from Europe, the focus is on this week’s US inflation numbers, with producer prices due tonight and consumer prices due on Wednesday.
When volatile prices for food, energy, and trade services are taken out of the picture, core producer price index (PPI) inflation probably increased in April. The month saw a significant increase in the prices paid indexes across surveys on manufacturing and services.
Following a drop in crude oil prices during the month of April, PPI most certainly moderated once again. We shall keep a careful eye on the PPI components that are important to the core PCE price index, such as the costs of financial services etc.
A stronger reading from producer or consumer prices can support the USD with the greenback also boosted for most of this year by high yields and strong growth.
Euro stronger across markets
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 13 – 18 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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