Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie, kiwi higher
The US dollar was mostly weaker in a quiet night of trading with the US and UK markets both closed.
The greenback extended Friday’s losses and remains in the short-term downtrend seen since Federal Reserve chair Jerome Powell essentially ruled out further rate hikes at the 2 May Fed meeting.
The USD index was down 0.1% overnight.
The kiwi remained the best performer thanks to last week’s more belligerent statement from the Reserve Bank of New Zealand. The NZD/USD gained 0.5% overnight and closed at the highest level since 13 March.
The Aussie was higher for a second day and AUD/USD gained 0.2%. The AUD/EUR gained 0.3% while AUD/JPY gained 0.4%.
The USD/CNH fell 0.2% as it slipped from one-month highs. The USD/SGD was flat.
US consumer confidence dip might extend pressure on USD
In May, we anticipate a five-point drop in consumer confidence to 92.0. Unexpectedly, the University of Michigan’s consumer confidence index dropped throughout the month.
According to the preliminary findings of the University of Michigan, consumers’ evaluations of the buying environment declined as a result of ongoing inflation and postponed expectations for interest rate reductions. We anticipate the Conference Board’s report to evaluate the state of the economy in a similar manner.
Despite good May seasonality, the USD has lost significant ground for the first time in two months as some weaker data and positioning collide with established macro narratives.
However, despite recent weakness, the USD index remains in a medium-uptrend and could see further gains especially if we see a stronger personal consumption and expenditure number on Friday.
GBP strength to be tested
A “typical May” does not actually exist when it comes to monthly variations in the BRC shop pricing index. Prices decreased on average by 0.1% month-over-month in May in the five years before the pandemic, or almost zero, but they increased on average by 0.3% month-over-month from 2006 to 2013.
In the time when we have witnessed significant inflation, recent May prints have ranged from +0.2% to +0.5% m-o-m. The annual rates of inflation would drop to 0.3% from 0.8% y-o-y for headlines, to -1% from -0.6% y-o-y for non-food, and to 3% from 3.4% y-o-y for food if May readings were flat this year.
The GBP has recently gained after last week’s stronger inflation result pushing the currency sharply higher versus APAC currencies. So far, the pending UK election has had little impact. The GBP/USD has moved towards key technical resistance at 1.28-2900 and might be more prone to reversal lower.
Kiwi leads commodity charge higher
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 – 31 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.
Have a question? [email protected]
