The US dollar continued to mark gains against all of its major counterparts throughout the second week of April. Inflation numbers out of the US supported the greenback, while the ECB, was less hawkish than expected, refusing to commit to any imminent rate hikes despite rising inflation pressures across the European Union. Commodity currencies slipped as the US 10-year bond yield closed in on 3%.
With Federal Reserve’s officials continuing to drum up support for a more aggressive tightening path, the US dollar is likely to remain supported unless we see a dramatic worsening in the economic outlook. The same factors caused a material selloff in US equities last week, which has continued in early Asian hours as futures dropped into the US open.
Chinese lockdowns have been eased in Shanghai, however some new ones in the Guangdong area are continuing to voice concerns about the future spread of Covid-19’s new variants in China. The war between Russia and Ukraine continues to be a factor, with Zelensky voicing concerns about a more aggressive move from the Russians on the Eastern front in the Donbass region. Oil prices have rallied hard last week after reports of an impending EU oil embargo on Russia.
Economic data highlights
Monday 18th April
· NZ, AU, EU, UK Good Friday
Tuesday 19th of April
· RBA Meeting Minutes
· US Housing Starts
Wednesday 20th of April
· German PPI, EU Industrial Production
· US Existing Home Sales
· NZ CPI
Thursday 21st of April
· EU HICP Inflation
· US Jobless Claims, Philadelphia Fed Survey
· US Fed Chair Powell Speech
· UK BoE Governor Bailey Speech
Friday 22nd of April
· UK Retail Sales
· EU and UK Preliminary PMIs
· Canada Retail Sales & US Preliminary PMIs
• US Housing Data & EU Inflation
• Fed Chair Powell and Bank of England’s Bailey Speak on Thursday
• UK Retail Sales & Early PMIs from EU, UK, US
Monday morning trading has been very slow due to the long weekend as Easter Monday shortens this trading week in Australia, New Zealand, the EU and in the UK. Equity futures headed lower into the US open, while precious metals have been well bid into the new week with both gold and silver rising. The US dollar remained well bid, especially against commodity currencies such as the AUD, NZD and CAD.
Oil rebound could continue
Last week’s reports about an impending EU oil embargo against Russia helped prices break back above $100 and trade as high as $104 before pausing into the long weekend. In the meantime the easing of Shanghai lockdowns helped on the demand side, as rumors about China stockpiling commodities continued to bid up prices for the asset class as a whole.
Russia’s war against Ukraine continued with some isolated missile attacks against several Ukrainian cities. The significant build of Russian troops in the Donbass region continued with Ukrainian forces also boosting their presence on the Eastern frontline.
US Housing Data
US housing data will take center stage in the middle of the week with building permits, housing starts, and existing home sales all being looked at closely in an environment of rapidly rising mortgage rates. In the absence of turbulence in this sector, the US expansionary trajectory could continue higher for some time.
The US dollar could also get a boost from continued downside in US equities and further signals from the Fed that its committed to tame high inflation reported last week. The US Fed is widely expected to hike interest rates by 50 basis points at its next meeting in May and we could see an acceleration of the equities selloff into the next meeting.
Powell and Bailey Speeches on Thursday
Speaking of central bank talk, the key figures to watch would be Fed Chair Jerome Powell and the Bank of England’s Governor Andrew Bailey on Thursday. Powell is likely to stick to the hawkish rhetoric he’s been using over recent talks, while Bailey could elaborate on the coming quarters for the BoE, as the UK central bank is the first one seeing inflation subsiding next year and officially adjusting its rates trajectory to reflect that.
UK Retail Sales and European PMIs
The final day of the trading week will bring some forward-looking data from the EU, and the UK – namely preliminary PMIs from across the continent. Upside surprises could boost European currencies towards the end of the week. That said continued tensions in the Ukraine and in energy markets could deter any positive outlook as the region continues to be highly dependent on Russian energy supplies.
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