Weekly Market Update 10 April – Dollar stems its slide to hover above 102, after better-than-expected employment data on Friday
Weekly Market Update 10 April – Dollar stems its slide to hover above 102, after better-than-expected employment data on Friday
1. The dollar index stemmed its slide against a basket of currencies to consolidate above 102, after strong economic data in the later half of last week outweighed weak data earlier in the week. Manufacturing PMI declined for the fifth-straight month, coming in at 46.3, below expectations of 47.5, signalling poor outlook in the sector. The JOLTS labour survey also showed vacancies falling below 10 million for the first time since July 2021, especially pertinent given that the latest numbers are only up till February before Silicon Valley Bank’s collapse, as part of the JOLTS’ backward-looking nature. Services PMI also came in below expectations, declining for the third straight month despite narrowly showing optimism at 51.2. Unemployment claims were also higher than expected, at 228k compared to 200k. Hence, Friday’s reassuring non-farm employment numbers provided a respite from the pessimism, showing an increase of 236k workers, just above the expected 228k, while the unemployment rate fell to 3.5% from 3.6%. Markets are now pricing in a more than 65% chance of a 25bps rate hike at the next Fed meeting in May, an increase from a 50% chance before Friday’s data. This week, CPI data will be released, followed by PPI and retail sales data, which will show whether the US economy is running out of steam.
2. The euro strengthened against the dollar, climbing from a low of $1.08 to end the week at $1.09. The ECB has remained silent on the size of next month’s rate hike, if any, choosing to give itself manoeuvring room. German factory orders and industrial production beat market estimates soundly, 4.8% against 0.2% and 2.0% against -0.1%, respectively. Given that core inflation inched up in the previous reading, markets anticipate a further 25bps rate hike in both May and June each.
3. The pound sterling continued its rise against the dollar, touching a high of $1.25 before paring some gains to hover above $1.24. Inflation is forecast to fall, on the back of lower energy prices, but the economy continues to outperform the BoE’s earlier pessimistic forecasts. Markets are also expecting a final rate hike by the BoE in May, which continues to provide support for the pound in the near-term.
4. The commodity currencies ended the week mostly flat despite OPEC+ production cuts, paring midweek gains after the dollar strengthened. The Loonie weakened against the dollar, with USD/CAD closing the week at $1.35. The Canadian economy remains strong, as employment increased by 34.7k beyond expectations of 10.2k, while the unemployment rate remained constant at 5.0%, lower than a forecasted rise to 5.1%. Markets are still expecting the BoC to keep rates constant at 4.5% next week after the previous 2 pauses in January and March. In Australia, the Aussie dollar closed unchanged at $0.66, after the RBA kept rates fixed at its Tuesday meeting. RBA Governor Lowe made clear that pausing rates did not indicate the RBA was done with its rate hike cycle, with the RBA having a history of pausing before its final rate hike in past tightening cycles. More data will be released this week, such as the change in employment and the unemployment rate. Elsewhere, the Kiwi retraced to $0.62 against the dollar, after the RBNZ surprised markets by raising rates by 50bps last week. Markets had originally expected a 25bps hike, but the RBNZ decided that inflation remained too high, with demand still too hot despite signs of it weakening. Markets are now anticipating further pain for the New Zealand economy after the latest hike.
5. Brent crude remained flat at $84 per barrel after OPEC+’s surprise decision to cut output last week. Price is consolidating as markets weigh the supply cuts against the weak demand, with traders unsure whether to read this move by OPEC+ as bullish or bearish. Usually, the cartel will aim to sell more when demand picks up, so a cut that takes place some time in the future might hint at weak demand ahead. OPEC and the IEA are both set to give their monthly outlooks this week, which could give markets direction on where prices are headed. Gold continued its steady rise to hold above $2000 per ounce last week, despite falling on the news of robust US economic data released on Friday. The price of gold is expected to fluctuate this week, given the flurry of US economic data due, which affects how hawkish the Fed can be moving forward. Still, with expectations that the Fed is nearing the end of its tightening cycle, the price of gold is expected to remain supported in the short-term.
