Data-Light Day Ahead
- There are no policy-relevant US economic data releases or scheduled Fed speakers today.
- UK BRC retail sales gets an Easter boost.
- The New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion points to a sharp deterioration in economic activity.
USD is mixed near recent lows and the sell-off in Treasuries stabilized. A couple of measures of US medium and long-term inflation expectations are edging higher which should keep the Fed cautious. The New York Fed 3-year ahead consumer inflation expectations survey increased to a 4-month high at 2.9% in March and 10-year inflation breakeven rates are near a five-month high at 2.39%. Fed President Neel Kashkari (non-voter) noted overnight that the Fed can’t “stop short on the inflation fight” adding the US labour market is still tight. Previously, Kashkari raised the possibility of no Fed funds rate cut but also indicated he pencilled-in 2 cuts in 2024.
There are no policy-relevant US economic data releases or scheduled Fed speakers today. Tomorrow’s US March CPI print is the next highlight. In the meantime, widening US bond yields versus yields of most other G10 countries offers USD support.
GBP/USD and EUR/USD are holding on to recent gains near 1.2660 and 1.0855, respectively. UK BRC retail sales was stronger than anticipated in March. Same store nominal sales rose 3.2% y/y vs. 1.8% expected and 1% in February. This was the strongest gain since August 2023 but was largely boosted by Easter falling unusually early. Friday’s February GDP report will offer a clearer picture of UK economic activity. The ECB releases its Q1 Euro area Bank Lending Survey (9:00am London).
USD/JPY is trading firmly just under its March high of 151.97. Verbal defence on the yen has so far been successful at capping USD/JPY strength. Japan’s Finance Minister Shunichi Suzuki warned again overnight that he’s watching currency moves with a high sense of urgency and will take appropriate action against rapid FX moves. In our view, it’s only a matter of time before USD/JPY breaks higher in part because we anticipate a gradual BOJ tightening process. BOJ Governor Ueda reiterated this morning that accommodative monetary conditions is expected to continue for time being. The next major technical resistance for USD/JPY after the 151.97-152.00 zone is not before 160.00 (April 1990 high).
AUD/USD is resilient around 0.6600 underpinned by the solid recovery in iron ore prices. Iron ore future prices on the Singapore and Dalian exchanges are up so far this week by roughly 7% and 5%, respectively, on speculation demand in China picks-up.
In Australia, forward-looking indicators point to soft economic activity and suggests more RBA policy rate cuts may be in the pipeline than is currently priced-in (34bps over 2024). The Westpac Melbourne Institute Consumer Sentiment Index fell by 2.4% to 84.4 in April following a 1.8% decline in March. The NAB March business survey was mixed. Business conditions fell 1pt to +9 while business confidence improved 1pt to 1 but remains below long-term average.
NZD/USD brushed-off the poor business outlook survey. The New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion points to a sharp deterioration in economic activity. A net 23% and 11% of firms are reporting a decline in activity over Q1 and Q2 respectively. This is a marked turnaround from the net 7% of businesses which had reported increased activity in Q4. New Zealand economic data have underwhelmed since the last meeting February 28. As such, the risk is the RBNZ delivers a dovish hold tomorrow (3:00am London) which can weigh on NZD. The market is pricing in the first cut in August, with 60bps of total easing this year.