The Dollar Index (DXY) extended its slide, easing 0.20% to 101.58 from 101.77 after a key US inflation rate rose to its smallest increase since November 2020. The US Personal Consumption Price Index (PCE) rose just 0.2% in April down from the previous month’s 0.9% and lower than economist’s forecasts at 0.8%.
The PCE report is the Federal Reserve’s preferred inflation indicator. On an annual basis, US PCE eased to 6.3% from 6.6%. US April Core PCE, which strips volatile food and energy costs, was up 4.9% year-on-year, from 5.2%. Wall Street stocks soared with the DOW settling 1.49% higher to 32,587 (32,097 Friday) while the S&P 500 gained 2.04% to 4,053 (3,973).
The rise in risk sentiment boosted the Australian Dollar (AUD/USD) up to 0.7160 from 0.7097 Friday, finishing as best performing FX. The Kiwi (NZD/USD), considered the smaller cousin to the Aussie, rallied to 0.6535 (0.6485 Friday). Sterling (GBP/USD) edged higher to 1.2615 from 1.2600 on Friday while the Euro (EUR/USD) saw modest gains, finishing at 1.0737 (1.0720 Friday).
Against the Japanese Yen, the Greenback (USD/JPY) dipped to 127.00 from 127.12. The Dollar was lower against most of the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) slid to 6.7310 from Friday’s opening at 6.7650. Against the Singapore Dollar, the Greenback dipped to 1.3700 from 1.3732 while USD/THB (Dollar-Thai Baht) fell to 34.07 (34.22).
Global bond yields were mostly lower. The benchmark US 10-year treasury rate dipped to 2.74% (2.75%). Germany’s 10-year Bund yield was last at 0.96% from 0.99%.
Other economic data released on Friday saw Japan’s Tokyo Core CPI in May up at 1.9%, matching April’s rise of 1.9%, but lower than median estimates at 2.0%. Australia’s April Retail Sales rose 0.9%, matching estimates (0.9%) but lower than March’s 1.6%. Spain’s April Retail Sales rose to 1.5% from a previous fall of -4.1%, beating forecasts of -1.9%.
US monthly Core PCE rose 0.3% from a previous 0.3%, matching expectations at 0.3%. US April Personal Spending climbed to 0.9%, beating estimates at 0.7% while Personal Income dipped to 0.4% from expectations at 0.5%. The University of Michigan Consumer Sentiment Index fell to 58.4 from 65.2, and lower than forecasts at 59.1.
· EUR/USD – Against the broadly weaker US Dollar, the shared currency climbed to 1.0737 at the close of trade on Friday, up from its open at 1.0720. Overnight, the EUR/USD pair traded to a fresh monthly high at 1.0765, before easing to settle lower. Overnight low traded was at 1.0725.
· AUD/USD – The Australian Battler rebounded against the generally softer Greenback and improved risk sentiment. At the close of New York, the AUD/USD pair settled at 0.7160 (0.7097 Friday). Overnight high traded for the Aussie Dollar was at 0.7169.
· USD/JPY – In more subdued, end of week trade, the Greenback dipped to 127.00 from Friday’s open at 127.12. Overnight, the USD/JPY pair traded to a high at 127.17 while the overnight low recorded was at 126.95.
· GBP/USD – The British Pound rose modestly against the Dollar to 1.2615 from 1.2600 Friday. Overnight high traded was at 1.2668 while the overnight low recorded was at 1.2593. There were no major economic data releases out of the UK on Friday.
On the Lookout: Ahead of this week’s economic data dump, today’s calendar is light. There are no major data releases out of Australia, New Zealand, and Asia today. US markets will be partially open as the country celebrates its Memorial Day holiday. Europe kicks off with German April Import Prices (m/m f/c 2% from a previous 5.7%; y/y f/c 32% from 31.2 % - ACY Finlogix). Switzerland follows with its May KOF Leading Indicators (f/c 102.3 from previous 101.7 – ACY Finlogix).
The Eurozone is next with its May Economic Sentiment Index (f/c 104.9 from 105.00 – ACY Finlogix), Eurozone May Industrial Sentiment (f/c 7.5 from previous 7.9 – ACY Finlogix). Germany follows with its Preliminary May Inflation Rate (m/m f/c 0.5% from 0.8%; y/y f/c 7.6% from 7.4% - ACY Finlogix). Canada rounds up today’s data releases with its Current Account (f/c +CAD 3.2 billion from previous -CAD 0.8 billion – ACY Finlogix).
Looking ahead this week, Wednesday (1 June) sees Australia’s CPI and China’s Caixin Manufacturing PMI. Thursday (2 June) in early Sydney sees the Bank of Canada’s Interest rate meeting where the BOC is expected to hike its overnight rate for the second consecutive time. Friday (3 June) sees the US Non-Farms Payrolls report. The US also releases its Treasury Currency Report.
Trading Perspective: Expect a tentative start to all markets in Asia today. The risk-on theme should see Asian stocks to a firm start. In FX, the US Dollar will trade mixed, albeit with a generally softer bias. US treasury bond yields finished lower with the benchmark 10-year rate down 10 basis points from a week ago. The Dollar Index (DXY) finished at a one month low on Friday at 101.50. A moth ago, the DXY was at 103.70.
The drop in the US PCE, which is known to be the Federal Reserve’s preferred inflation indicator, may see the US central bank consider a pause in its rate increases. From inflation, markets will now focus on the US employment report for April which will see any further Greenback weakness limited. Expect FX volatility, which took a breather on Friday, to pick up again this week. Keep those tin helmets handy.
· EUR/USD – The shared currency had a good bounce on Friday, finishing in New York at 1.0737 (1.0720 Friday). Overnight, the Euro soared to a one-month high at 1.0765 before easing. For today, immediate resistance lies at 1.0750 followed by 1.0780 and 1.0810. On the downside, we find immediate support at 1.0700, 1.0670 and 1.0640. Look for consolidation today in a likely range of 1.0670-1.0770. Prefer to sell rallies.
· AUD/USD – The Aussie Battler jumped to an overnight high at 0.7170 in choppy trade before settling to close at 0.7160 in New York. Immediate resistance today lies at 0.7180 followed by 0.7210 and 0.7240. On the downside, we can find immediate support at 0.7120 followed by 0.7090 and 0.7060. Look for the Aussie to consolidate, likely range 0.7090-0.7170. Preference is to sell rallies.
(Source: Finlogix.com)
· USD/JPY – Against the Japanese Yen, the Greenback edged lower to 127.00 from 127.12 on Friday. Overnight low traded was at 126.70 while the high recorded was at 127.40. On the day, we can find immediate support at 126.70 followed by 126.40. Immediate resistance lies at 127.30 followed by 127.60 and 127.90. Look for this currency pair to trade a likely 126.70-127.70 range today. Preference is to buy dips.
· GBP/USD – Sterling also benefitted from overall US Dollar weakness, closing at 1.2615 from Friday’s open at 1.2600. Overnight high traded was at 1.2638. For today, we can find immediate resistance at 1.2640 followed by 1.2670 and 1.2700. Immediate support lies at 1.2590, 1.2560 and 1.2530. Look for further choppy trade in this currency pair, with the likely range today between 1.2570-1.2670. Preference is to sell into Sterling strength.
Have a good trading week ahead all. Happy Monday.
This article was written by Michael Moran, ACY Senior Currency Strategist at ACY Securities.
This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
