Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD weaker with markets calm before the (potential) storm
The US dollar was mostly lower with markets seemingly calm ahead of tonight’s critical US inflation reading.
The USD index fell 0.2% and closed at the lowest level since 10 April.
The greenback was lower in most markets with the euro and British pound both higher.
In Asia, the USD/JPY bucked the trend and continued higher, while the USD/CNH was flat and the USD/SGD fell.
In Australia, ahead of US inflation, the AUD/USD climbed 0.2% with a key local inflation-driving release also due.
The March-quarter wage price index is released at 11.30am AEST. Financial markets are looking for a steady result with the quarterly number forecast at 0.9% and the annual rate at 4.2%.
The NZD/USD was higher, up 0.4%, as it closed at the highest level since early April. The pair remains in a substantial downtrend, however, with a move above 0.6100 required to nullify the downtrend.
US CPI to be critical
Perhaps the most important release of the month, US CPI, is due at 10.30pm AEST.
As mentioned, financial markets seem remarkably sanguine, especially after headline annual inflation has been higher than forecast for four consecutive months.
Overnight, despite a higher-than-expected producer prices number (with the headline monthly number for March at 0.5% versus 0.3% forecast although the annual number was in line) the greenback weakened and the US ten-year bond yield fell from 4.50% to 4.48%.
Tonight, markets are looking for headline annual inflation to fall from 3.5% to 3.4%, with the core number forecast to fall from 3.8% to 3.6%.
However, with markets seemingly relaxed about the number, a higher-than-expected result could shock and drive the USD sharply higher.
Swedish krona at lows despite inflation rise
Pressured by a combination of rising US rates and the recent rate cut from the Riksbank, the Swedish krona has been struggling this month.
Looking ahead, Sweden’s CPIF inflation is predicted to increase somewhat from 2.2% in March to 2.3% y-o-y in April.
CPIF ex-energy also rises by 0.1 percentage points, from 2.9% to 3.0%. This would be much less than the Riksbank’s projection, which was released in its most recent MPR, but mainly as a result of the negative March surprise.
The Riksbank anticipated that in April, both the headline and core inflation rates would be constant year over year.
The recent krona weakness has seen the SEK fall to six-month lows versus the US and Australian dollars. The EUR/SEK is also trading near six-month highs with next key resistance level at 11.75.
USD lower ahead of inflation
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.
Have a question? [email protected]
