Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Interest rate cuts still in play
Last week’s major central bank meetings revealed a broadly dovish tilt, particularly among G10 economies grappling with slower growth prospects.
As the ECB and Fed signaled potential rate cuts over the summer, other central banks followed suit in embracing more accommodative stances, while the Swiss National Bank become the first major central bank to cut rates last week.
This dovish pivot punished higher-yielding currencies like the Aussie as rate differentials narrowed, while supporting risk assets on expectations of easier financial conditions, helping equity markets higher.
The FX market’s reaction to last week’s dovish pivot suggests investors remain sensitive to policy guidance that could further compress yield differentials. Central bank communications and incoming economic data will likely drive currencies in the days ahead.
The USD index was up 1.0% last week. In other markets, the AUD/USD fell 0.7% last week, while the NZD/USD lost 1.5%.
The USD/SGD gained 0.8% last week and USD/CNH was flat.
Australian, Singapore CPI in focus
Looking ahead, all eyes will be on the Swedish Riksbank after its notably dovish January meeting. It may be the next G10 central bank to hint at rate cuts.
Other key events include US PCE inflation data, eurozone economic sentiment, and the Bank of Japan policy decision.
On the regional front, Australian CPI, retail sales, and private credit growth will provide important updates on consumer spending and price pressures.
In Singapore, CPI and industrial production numbers will help gauge economic momentum. Japan will also see closely-watched releases, including Tokyo CPI, retail sales, industrial output, and unemployment figures.
Euro weaker after reversal from highs
The euro has been mostly lower this month after the ECB held rates steady at its 8 March meeting and said it did not consider a reduction at the meeting. According to Lagarde, “a lot more” information will be made public in June, and “a little more” in April.
What the incoming statistics really look like will be a key factor in determining whether or not the ECB moves. Consequently, the rates path continues to be fully contingent on the data.
The ECB’s current assessment of the data is that while there has been some improvement, there is still insufficient confidence in the anticipated disinflation to hold meaningful discussions on rate cuts.
The euro fell last week with the EUR/USD turning from near key resistance at 1.1000, the EUR/SGD fell from near 1.4650 while the AUD/EUR continued to find support near 0.6000.
Greenback ends week on high
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 25 – 29 March
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.
Have a question? [email protected]
Take a deep dive into the trends shaping cross-border payments with our podcast, Converge.
