Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US recovers ahead of CPI
The US dollar was higher on Friday with the greenback staging a small recovery after the world’s most traded currency was mostly weaker over the last fortnight.
The US Federal Reserve sounded less concerned about inflation at its most recent meeting while US jobs numbers have recently weakened, causing the greenback to slip for most of May.
However, the US dollar was higher on Friday as markets looked ahead to this week’s critical inflation reading. A higher inflation reading might see the USD swiftly recover.
In Europe, the GBP/USD was flat while the EUR/USD lost 0.1%.
The AUD/USD and NZD/USD both fell 0.3%.
Across Asia, the USD/JPY, USD/CNH and USD/SGD all gained around 0.2%.
Inflation key for greenback gains
While the US dollar has recently weakened, there remains key factors that can drive a recovery.
First, medium-term inflation expectations have been rising, much like mid-last year, but the magnitude has been more muted, in large part because this rise has been driven by broad increases in energy and other commodity prices.
Second, Fed policy expectations have repriced higher, also like last year, although there are distinct differences in the current environment.
And third, US growth forecast has been upgraded for the last three months.
This week, the main focus will be the US inflation data, due Wednesday night.
NZ inflation expectations, Aussie jobs due
Away from US inflation, there are other major economic releases will impact currency markets over the coming week.
In NZ, inflation expectations, due Monday, will be key as the NZD underperforms in expectation the Reserve Bank of New Zealand might soon cut interest rates.
The Australian labour market report on Thursday will be closely watched, with employment anticipated to rebound after a decline in March. However, wage growth, due on Wednesday, appears to have peaked, potentially easing Reserve Bank of Australia tightening concerns somewhat.
Elsewhere, Japan’s preliminary first quarter GDP data on Thursday is forecast to show an economic contraction, weighed down by supply disruptions and weak consumption. A deeper downturn could spur speculation over potential stimulus measures to support the recovery.
Chinese activity data for April on Friday will provide an update on the strength of the economic rebound, with industrial production and retail sales expected to show solid expansion amid re-opening momentum.
Greenback stages comeback
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.
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