Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
FX cautious ahead of key releases
FX markets were mostly quiet overnight – with the US dollar inching higher – ahead of two major US releases.
First, US CPI is due, with markets looking for the headline annual rate to remain steady at 3.4% while the core number is forecast to fall from 3.6% in April to 3.5% in May.
Later, the key Federal Reserve decision is due at 4.00am AEST.
The Australian and NZ dollars were mostly steady with the AUD/USD flat while the NZD/USD gained 0.2%.
The USD/CNH gained 0.1% while USD/SGD was flat.
In other markets, the euro extended losses after the weekend’s elections, with the EUR/USD down 0.2% as it fell to six-week lows.
USD index at one-month highs ahead of Fed
Looking to the central bank decision in more detail, Fed policy is probably going to be on hold, with a high barrier for any rate cuts in the foreseeable future.
We anticipate only minor adjustments to the economic forecasts and statement, as well as a little tilt toward hawkishness in the dot plot.
Powell will probably continue to emphasize that there isn’t much of a need to lower rates during his press conference, but he will probably also retain an easing bias.
THB outlook bearish
Given that the first quarter GDP growth exceeded expectations, we anticipate that the Bank of Thailand (BOT) will maintain its policy rate at 2.5%.
In May, inflation also moved back into the 1-3% goal range set by the BOT. Even while the increase in inflation is primarily due to base effects and is unlikely to last, it will nevertheless probably reduce the chance of a BOT reduction in June.
We anticipate that there will be a 5-2 vote, with the two dissenters sticking to their view of weaker future growth and voting for a 25bp decrease. We believe that the policy statement should essentially be the same in tone. By upholding the policy statement, the BOT will probably still keep the door open to a cut in the ensuing sessions.
We believe that the policy statement’s general tone ought to stay the same. Maintaining in the policy statement that the MPC will “take into account growth and inflation outlooks in deliberating monetary policy going forward,” the BOT will probably still keep the door open to a cut at the next sessions.
Based on fundamentals, we are pessimistic on THB.
FX quiet ahead of CPI, Fed
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 10 – 15 June
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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