Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Global markets recover on Monday
Global markets were sharply lower on Friday as geopolitical fears grew with markets worried about a potential Iranian strike on Israel over the weekend.
The US’s S&P500 fell 1.5% on Friday while the US dollar surged. The AUD/USD fell 1.1% while the NZD/USD lost 1.0%.
However, markets were calmed on Monday, after Iran’s weekend attack – seen as retaliation for an earlier suspected Israeli strike on Syria – was mostly halted by Israeli air defenses. Iran called the attack a “success” and observers believe direct hostilities between Israel and Iran might now pause.
Financial markets opened Monday on a slightly more optimistic footing with US stockmarket futures up 0.2% and the AUD/USD up 0.1%.
Global markets will still need to grapple with some big issues this week, however. Last week’s higher than expected US inflation reading has caused markets to wind back expectations for US rate cuts and pushed the US dollar to near six-month highs.
On the other hand, a drop in European inflation has seen the European Central Bank now open to rate cuts – potentially as soon as June. The euro was down sharply last week.
Powell’s cautiously optimistic tone to be tested
The most recent US jobs and inflation readings have caused markets to doubt the stance of Federal Reserve Chair Jerome Powell.
Powell has most recently maintained his cautiously optimistic posture during the most recent news conference.
Powell has maintained the Fed’s base calls for three cuts this year beginning in June. It’s a close call, though. Governor Waller was notably more assertive.
The big question? As the chance of a June cut declines, what’s the risk the Fed may not be able to lower rates at all this year if it is unable to do so in June?
Central bank divergence driving FX markets
Looking ahead, the US retail sales data will offer clues about the strength of the US economy.
Additionally, the industrial production and Philly Fed index releases will be closely watched for further indications of US economic performance.
The economic landscape will be shaped by central bank divergence, with the release of Canada’s CPI, BoE’s Bailey and Japan’s CPI providing insights into the policy decisions of various central banks.
The UK’s employment and retail sales data, Germany’s ZEW, and Australia’s employment will offer clues about the health of the global economy, with investors closely monitoring these releases for signs of economic momentum or potential headwinds.
In the EM space, the focus will be on the preview of China’s Q1 GDP, retail sales and industrial production figures as investors assess the pace of the country’s economic recovery.
Aussie, kiwi plunge on geopolitical fears
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 15 – 19 April
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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