Will US Consumers Remain Upbeat?

March 26, 2024

Will US Consumers Remain Upbeat?

  • The US March Conference Board consumer confidence index will be closely watched today.
  • Hungary’s central bank is expected to cut the policy rate by 75bps to 8.25%. The risk is they slash by 100bps.
  • Australia’s Westpac/Melbourne Institute Consumer Sentiment Index fell in March.

USD continues to retrace some of last week’s gains. This looks more like a technical correction rather than a fundamental-driven pullback. The minor US economic data released yesterday and recent comments by Fed officials don’t justify sustained USD weakness.

Interestingly, a couple of Fed officials have revealed their Dot. Atlanta Fed President Raphael Bostic is one of two officials who voted for 1 cut. Chicago Fed President Austan Goolsbee is one of nine who voted for 3 cuts. Governor Lisa Cook did not reveal her Dot but noted that “fully restoring price stability may take a cautious approach to easing monetary policy over time”. There are no scheduled Fed speakers today.

In our view, USD has scope to edge higher because we don’t expect the Fed will deliver 75bps of rate cuts this year. The US economic growth outlook is encouraging, financial market conditions very loose, and the February PCE deflator (Friday) is expected to remain too sticky for the Fed to cut any time soon.

The US Conference Board consumer confidence index will be closely watched today (2:00pm London). Consumer confidence is expected to recover in March to 107.0. Recall, consumer confidence fell in February to 106.7 following three consecutive months of gains. Also, a number a regional Fed surveys for March roll-out during the day as well as the February durable goods orders report (12:30pm London) and January house prices (1:00pm London).

EUR/USD is up above its 200-day moving average (1.0838). The modest improvement in Eurozone March leading economic indicators (ZEW, PMI, IFO) helped reduce odds the ECB will slash policy interest rates by more than 75bps this year. This morning, Germany’s GfK consumer confidence index ticked-up in April to a three-month high at -27.4 from -28.8 in March. ECB Governing Council member Madis Muller speaks today (9:00am London).

HUF is trading firmly against most EMFX ahead of Hungary’s central bank (MNB) policy rate decision (1:00pm London). MNB is expected to cut the policy rate by 75bps to 8.25%. Stagnant economic activity in Hungary and strong disinflationary pressure (CPI inflation slowed to a three-year low at 3.7%/yr in February) leave plenty of room for MNB to continue easing aggressively. The risk is the MNB slashes again by 100bps following signs of a pause in the conflict between the government and the central bank.

USD/CAD is holding on to recent losses, trading around 1.3580. Bank of Canada Senior Deputy Governor Carolyn Rogers gives a speech titled “The urgent need to improve Canadian productivity” (12:00pm London).

Japanese officials continue to fan the flames of intervention. Japan’s Finance Minister Shunichi Suzuki warned the government is watching FX moves with a high sense of urgency and will not rule out any options against excessive FX moves. Suzuki’s comments echoed those of his colleague and top currency official, Masato Kanda, yesterday. The BOJ last intervened to stem JPY weakness between September and October 2022. USD/JPY ultimately peaked at 151.95 on 21 October 2022, and USD/JPY has so far held under this resistance level. In our view, it’s only a matter of time before USD/JPY makes new cyclical highs in part because we anticipate the BOJ’s policy normalization process will be gradual and brief.

AUD/USD is directionless just under its 200-day moving average (0.6551). AUD/USD will likely remain heavy as iron ore prices are under renewed downside pressure. Moreover, Australia’s Westpac Melbourne Institute Consumer Sentiment Index fell 1.8% to 84.4 in March, suggesting consumers are more concerned about the near-term economic outlook. The data validates the RBA’s concern about weak household consumption growth and support money market pricing for 50bps of rate cut this year.

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