Dollar weakens on Yellen’s dovish comments; EURUSD hits 5-month high.
Much of last week’s focus was on Fed Chair Janet Yellen’s comments and US employment data. Two dovish statements “I consider it appropriate for the committee to proceed cautiously in adjusting policy” and “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric” made by Yellen on Tuesday were picked up by traders. The Non-Farm Payroll and Average Earnings came in at 215K and 0.3% respectively, slightly better than the consensus of 206K and 0.2%, unemployment rose to 5.0%. The relatively healthy employment data and hawkish views from some of the Fed members are not enough to counter the dovish sentiment. After all, words from the chief definitely carry more weight.
The hope of rate hike on the last week of April looks slim. Unless Fed Chair alters her dovish stance, a rate hike in June could be equally unlikely as well. What about the 2 rate hikes “dot plot” from the recent FOMC? It was just an indication; nothing is cast in stone. Judging from the sell-off in the dollar, market is already scaling back their rate hike expectation.
Most of the major counterparts had taken advantage of the weak dollar, except for the sterling. Weaker than expected Current Account and Manufacturing PMI, plus the risk of possible “Brexit” limited the gain.
WTI Oil fell eight days in a roll to $37 a barrel, after hitting its 3-month high of $42. Traders are beginning to doubt the “production freeze” proposal to receive positive support during the 17th April meeting. Mohammed bin Salman (Saudi Arabia’s deputy crown prince and leading political force) highlighted Saudi Arabia will only freeze its output if Iran and other major producers agree to do so. The latest stance from Iran is they will boost their output after their 4-decade oil export ban was lifted earlier this year. The warning threw the outcome of the 17th April meeting wide-open. If the pro-“production freeze” countries can convince Iran, WTI will have a chance to rally past $40 again. Or else, it may head towards $30 again.
The highlight of this week is likely to be the cash rate announcement and statement by Reserve Bank of Australia (RBA). Their closest neighbour, New Zealand slashed their interest rate by 25 basis points earlier last month. With the Aussie trading around 0.76, which is getting further and further away from RBA’s “preferred” level of 0.65, there is a slight chance they may announce a surprise rate cut or jawbone it during their statement.
Our Picks
AUDUSD – Slightly bearish. Possible jawboning by RBA to weaken the Aussie, however the move may be limited by the weakness in the dollar.
Gold – Slightly bearish. Gold has entered a technical reversal from the rally since late last year. Price could fall further if the support around 1215 fails.
GBPJPY – Slightly bearish. The weakness in Sterling is likely to continue if price breaches the support around the level of 158.50.
Top News This Week
Australia: Cash Rate. Tuesday 5th April, 12.30pm.
We expect figures to remain unchanged at 2.0% (previous figure was 2.0%).
US: Unemployment Claims. Thursday 7th April, 8.30pm.
We expect figures to come in around 268K (previous figure was 274K).
Canada: Employment Change. Friday 8th April, 8.30pm.
We expect figures to come in around 5K (previous figure was -2.3K).
Fullerton Markets Research Team
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