Forex Major Currencies Outlook (Apr 1 – Apr 5)
NFP data combined with inflation data from the Eurozone will dominate the markets in the week that will also see ISM PMI data from the US, employment data from Canada and inflation data from Switzerland.
USD
Atlanta Fed President Bostic forecast that Fed will deliver only one cut in 2024 and that it will be made later in the year than market is expecting. He stated that as long as GDP is high with strong economy and healthy labour market he is not in a hurry to get inflation down to 2%. He clarified that he is now less confident that inflation will continue dropping to 2% than he was in December, thus a change in number of rate cuts.
Fed Governor Waller stated that Fed is in no rush to cut rates and may need to hold them longer than expected thus echoing some of the remarks by Bostic. He remarked that more progress on inflation is needed before he can support rate cut, more data showing that inflation is heading down to the 2% target. He added that recent data and the economy as a whole allow Fed to approach rate changes cautiously.
PCE data for the month of February showed headline inflation ticking up to 2.5% y/y from 2.4% y/y in January while core PCE printed 2.8% y/y, a tick down from upwardly revised January reading of 2.9% y/y. Personal spending rose by 0.3% m/m after a 1% m/m increase the previous month while personal income jumped 0.8% m/m after a 0.2% m/m increase in January. Higher income will not help Fed in fight against inflation. Durable goods rebounded in February printing 1.4% m/m increase after a plunge of 6.9% m/m in January. Core orders, non-defense capital goods orders ex aircraft, have a good lead quality for business investment grew by 0.7% m/m vs 0.1% m/m as expected.
The yield on a 10y Treasury started the week at 4.19%, rose to 4.25% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.59% and reached the high of 4.63%. Spread between 2y and 10y Treasuries started the week at -39bp then widened to -42bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while rate cut probability is 4%. Probability of a June rate cut is around 64%.
This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected around 200k while the unemployment rate should remain at 3.9%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
Friday:
NFP
Unemployment Rate
EUR
ECB Chief Economist Lane stated that wage data show wage growth returning to normal. He clarified it by saying that it is desirable for wage growth to be above normal in the next several years but it is important that it returns to normal over time.
Preliminary March CPI data from Spain came in line with expectations at 3.2% y/y but a big jump from 2.8% y/y seen in February. Core CPI went in the other direction and declined to 3.3% y/y from 3.5% y/y the previous month. Italy CPI jumped as well to 1.3% y/y from 0.8% y.y in February. French CPI, on the other hand, plunged by more than expected to 2.3% y/y from 3% y/y in February.
This week we will have preliminary March CPI reading.
Important news for EUR:
Wednesday:
CPI
GBP
BoE policymaker Catherine Mann, one of the biggest hawk in the MPC and voter for a 25bp rate hike, explained her decision for no change in rate at the March meeting as necessary. She said it is time to move away from rate hikes as discretionary services inflation started to soften. She added that markets are pricing too many rate cuts and that market curve in the UK is impacted by decisions made by Fed and ECB. Boe policymaker Haskel, another hawk who also voted for a 25bp rate hike in February and then changed to no change in March, stated that declines in inflation are very welcoming and that persistence and underlying inflation is what BoE pays most attention to. He added that he thinks that rate cuts are a long way off.
AUD
February monthly CPI reading showed inflation unchanged at 3.4% y/y vs 3.5% y/y as expected. Monthly inflation reading does not encapsulate all of the CPI components. It includes around 70 percent of total CPI basket used for quarterly measuring. The next quarterly reading will come on April 24.
Bloomberg survey is projecting two more RRR cuts by PBOC by the end of the year. Additionally, they see rate cuts to both 1 and 5-year LPR. Industrial profits for the January – February period showed increase of 10.2% y/y thus making it the first positive reading since June of 2022. A jump in manufacturing profits was the main contributor followed by utilities. When looking at industries, “computer, communications and other electronic equipment manufacturing” category showed staggering jump in profits of 210.9% y/y!
NZD
New Zealand Treasury has cut their inflation and growth projections. They now see inflation at 3.3% for fiscal year (FY) of 2024 vs 4.1% as previously seen. GDP for FY of 2024 is seen coming in at meager 0.1%, down from 1.5% as previously forecast. They then see GDP rebounding in FY of 2025 to 2.1% from 1.5% as seen in previous forecast. Business confidence in March recorded a big drop as it printed 22.9, down from 34.7 in February.
CAD
Preliminary wholesale trade data for the month of February showed an increase of 0.8% m/m. Strong increases are seen in machinery and equipment sectors as well as in motor vehicles and motor vehicle parts. January GDP rose by 0.6% m/m vs 0.4% m/m as expected. Services industries rose by 0.7% while manufacturing led by transportation equipment rose by 0.9%. CAD has strengthened across the board during the week.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Tokyo area CPI for the month of March saw headline number come in unchanged at 2.6% y/y. Ex fresh food ticked down to 2.4% y/y from 2.5% in February while ex fresh food, energy declined to 2.9% y/y from 3.1% y/y the previous month. This is the first sub 3% reading for the category since December of 2022. Inflation still stays above 2% target but it is not rising. Preliminary industrial production for February fell further by 0.1% m/m while a rebound of 1.4% m/m was expected. The reading showed further decline in the yearly number as it printed -3.4% y/y, down from -1.5% y/y in January. These bleak data are overshadowed by the very positive outlook for the March and April readings. Retail sales, on the other hand, posted a very good result, rising 1.5% m/m and 4.6% y/y and showing that consumer is increasing spending.
CHF
SNB total sight deposits for the week ending March 22 came unchanged at CHF469.2bn. Swissy is weakening after SNB cut and the bank is not intervening as markets are doing their job for them.
This week we will have inflation data.
Important news for CHF:
Thursday:
CPI
