Forex Major Currencies Outlook (Apr 25 – Apr 29)

USD 

St Louis Fed President James Bullard, the most hawkish Fed president by far, stated in an interview that he would not rule out a 75bp rate hike but the base case is for a 50bp rate hikes. He stated desire to get to neutral rates expeditiously and get above neutral rates as early as Q3. Inflation is way high to their liking. Both the IMF and the World Bank have downgraded global GDP forecast for the 2022. IMF cut it to 3.6% from 4.4% in January citing war in Ukraine as the main reason followed by the prolonged lockdowns in China. Inflation was also added to the list of concerns as it will lead to central banks rising interest rates and thus stifling growth. 

Interest rate futures steepened and we have 225bps in hikes are now priced in for this year, implying that three of the remaining six policy meetings this year will bring a 50bp increase. Chairman Powel was quoted saying “I would say that 50 basis points will be on the table for the May meeting.” and markets now see the 50bp rate hike as a done deal. Treasuries continued to be sold heavily at the start of the week and yield on 10y got very close to 3%. It peaked at 2.977%. 

This week we will have an advanced reading of Q1 GDP as well as Fed’s preferred PCE inflation data. 

Important news for USD: 

Thursday:

• GDP

Friday:

• PCE 

EUR 

Preliminary PMI data for April from Eurozone saw declines in manufacturing but increases in services sector. Those increases in services managed to push composite higher. Manufacturing PMI came in at 55.3 vs 56.5 the previous month. French reading managed to improve compared to the previous month, but the German reading was much weaker due to increasing supply chain frictions and rising input costs. Services came in at 57.7 vs 55 as expected and up from 55.6 in February. Both Germany and France showed improvement in services sector thanks to effects of reopening. Composite came in at 55.8 vs 54.9 in February. ECB member Kazaks has advocated for an end to APP in July and a rate hike in the same month. His calls were echoed by Vice President Luis de Guindos which gave EUR a boost through the week. 

This week we will have a preliminary Q1 GDP and April inflation readings. 

Important news for EUR: 

Friday:

• GDP
• CPI 

GBP 

Retail sales data for March disappointed. Headline number fell by -1.4% m/m and with a downward revised February reading to -0.5% m/m it marks two consecutive months of falling data. Retail sales were up only 0.9% y/y. The main drop was seen in the online sales, however with consumer confidence dropping to almost the lowest on record and with surging energy prices the question is how much more can consumer take? BOE is on path to raise rates one or two more times before pausing. 

Preliminary PMI data for April saw services deteriorate to 58.3 from 62 in February and drag with them composite to 57.6 from 60.9 the previous month. Mounting inflation pressures through surging input prices put a strain on demand and dragged the readings down. Manufacturing managed to eek a small gain and rose to 55.3 from 55.2 the previous month. 

AUD 

Minutes from the RBA April meeting painted a more hawkish picture. There was a mention that in the light of the recent events “likely timing of the first increase in interest rates" has been brought forward. The bank remains data dependent and statement "Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs" undoubtedly puts inflation and wages data as the most important data poinys. We will get inflation data for Q1 next week and it is expected for it to move further away from bank’s 2-3% range. Wages will be published on the May 18 and we do not see them rising above the bank’s desired level of 3%. They will get closer to it and it may prompt some action from the central bank. We see June meeting as the date for the first rate hike. 

Q1 GDP data from China came in at 1.3% q/q vs 0.6% q/q as expected and 4.8% y/y vs 4.4% y/y as expected. Data for March were much less rosy. Industrial production did beat expectations by coming in at 5% y/y vs 4.5% y/y as expected, however retail sales were hammered and came in at -3.6% y/y vs -1.6% y/y as expected. Harsh lockdowns have crippled the consumption. 

This week we will have Q1 inflation data from Australia, very important for the RBA’s decision on rates going forward, as well as official PMI data from China. 

Important news for AUD: 

Wednesday:

• CPI

Saturday:

• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China) 

NZD 

RBNZ Governor Orr stated in his speech that bank’s main challenge is to orchestrate a “soft landing” over the next couple of years, avoiding a recession. He added that policy is geared toward containing mounting inflation expectations. More rate hikes are expected to come in the coming quarters in order to contain those rising inflation expectations in the medium term within bank’s target range of 1-3%. GDT auction saw a drop in prices of -3.8%. This is a third consecutive auction of falling prices after a long string of rising auctions and this one reported a first significant drop. 

Q1 inflation data came in at 6.9% y/y vs 7.1% y/y as expected and up from 5.9% y/y in Q4. On quarterly level it came in at 1.8% q/q vs 1.4% q/q in the previous quarter. RBNZ’s core measure came in at 4.2% y/y vs 3.2% y/y in Q4. Targeted band for core is 1-3%. At their last meeting RBNZ has raised by 50bp 

CAD 

Inflation in Canada continued to rise. March headline reading printed a whopping 6.7% y/y vs 6.1% y/y and 5.7% y/y in February and a 1.4% m/m. This is the highest inflation reading since 1991. All eight of the major price components showed an increase when compared to the previous month with transportation leading the way followed by food and shelter. Core measures also brought increases with trim printing 4.7% y/y, median 3.8% y/y and common 2.8% y/y. With inflation heading north BOC will stay on its 50bp rate hike path and CAD is loving it, gaining against all of the major currencies. 

JPY 

BOJ Governor Kuroda stated that yen's rapid weakening can have negative impact, weak yen is a positive for the economy as a whole while its impact is not evenly distributed among sectors and corporate sizes. He reiterated that it is appropriate to continue with monetary easing and that it is still too early to talk about the exit from the stimulus policy. 10y JGB’s have been rapidly approaching the 0.25% level and JPY has been weakening as a result since investors see that BOJ will defend that level. And they did on Wednesday April 20 when they announced unlimited purchases of 10y JGBs at a fixed rate of 0.25% adding that purchases will continue for the entire week until April 26. Preliminary PMI data showed services at 50.5, returning to expansion territory for the first time after four months of contractions. Manufacturing came in at 53.4 with composite at 50.9. 

This week we will have a BOJ meeting. There will be no changes to monetary policy. The bank will publish its outlook report showing new projections of lower growth and higher inflation. 

Important news for JPY: 

Thursday:

• BOJ Interest Rate Decision 

CHF 

SNB total sight deposits for the week ending April 15 came in at CHF740.1bn vs CHF739.4bn the previous week. A small increase as the EURCHF pair is moving further away from the parity level and is now hovering at around the 1.02 level.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}