Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Check out our latest episode of the Converge Podcast covering the USD’s rise in Q1, the paring back of interest rate cuts for 2024, the surprise rate cut in Switzerland, the divergence between the Fed and ECB and the volatility puzzle in FX.
US dollar falls in line with sharemarket sell-off
The US dollar was mostly lower as US shares extended a recent slide with the benchmark Dow Jones index down 1.4%. in its worst day since last year’s US banking crisis. It was the fourth-consecutive day of losses for the Dow.
The US dollar, recently closely tied to gains in sharemarkets, fell in line with the overnight losses.
The weaker US dollar boosted currencies around the region with the Aussie and kiwi having another positive session despite some losses near the end of New York trading.
The AUD/USD gained 0.4% while NZD/USD climbed 0.3% — both pairs hit new two-week highs overnight.
The AUD and NZD were stronger in most other markets with the AUD/EUR at two-month highs and the NZD/CHF at five-month highs.
NFP slowdown key for Fed’s next move
The US dollar also fell after a jump in weekly unemployment claims caused markets to increase expectations for Federal Reserve rate cuts.
Looking to Friday night’s nonfarm payrolls (NFP), it looks likely that growth will have weakened and headline job gains will have slowed to a four-month low of 205k.
The unemployment rate is forecast to remain steady at 3.9% (source: Refinitiv).
The recent strength in the US NFPs – this series has beaten expectations in the four previous releases – has been a positive anomaly with other labour-related indicators weakening.
A weaker US jobs report tonight could add further pressure to the greenback.
RBI policy due as INR hits all-time lows
The Reserve Bank of India decision due on Friday comes just days after the Indian rupee fell to all-time lows versus the US dollar.
If the Monetary Policy Committee votes 5-1 in favor of maintaining the current policy rates, we anticipate that the Reserve Bank of India (RBI) will follow. It’s probable that external member Prof. Jayanth Varma will stick to his opposition to policy rate decreases, and it’s possible that external member Dr. Ashima Goyal will join him, but it’s close.
We anticipate that the MPC will be evenly split (5-1 split) when deciding whether to stick with its “withdrawal of accommodation” approach.
Overall, we anticipate Governor Das to continue to be upbeat about the prospects for growth while exercising caution over the upward risks to inflation posed by rising food prices, even though the softening of core inflation is probably something to be encouraged about.
Even while RBI has the strongest argument to ease in Asia, any further gains in USD/IDR is constrained by its sensitivity to the impact of rate differential with the US.
Aussie, kiwi gain in Europe
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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