Forex Major Currencies Outlook (Apr 26 – Apr 30)

USD 

President Biden spoke about increasing tax on capital gains for wealthy investors earning more than $1 million. Proposed tax increase should be toward 39.6% from 20% previously. This led to the unease in the markets with S&P500 dropping almost 1% on the release. Biden campaigned on the promise of capital gains tax hike, however there is a long road ahead for it to pass through the Congress. 

This week we will have preliminary Q1 GDP data, Fed’s preferred inflation PCE data combined with personal spending and income data as well as Fed meeting. After BOC hawkish move toward a rate hike in H2 of 2022 chairman Powell will be pressed to express Fed’s stance on why they do not see rate hikes until 2024. 

Important news for USD: 

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE 

EUR 

ECB has kept key rates unchanged at their meeting as was widely expected. The size of PEPP programme stays at the €1.85 trillion level with monthly asset purchases at the pace of €20bn. They are prepared to step up purchases if the need arises and purchases in Q2 will be higher than those in Q1. ECB President Lagarde stated that vaccine optimism underpins expectations for an economic recovery. Inflation has picked up due to the base effects but overall price pressures remain low and unsatisfactory. Economic data indicate a resumption of growth in Q2. The governing council has basically reaffirmed their stances from March meeting and with the next meeting coming on June 10 they are prepared to wait and take clues from the incoming economic data. Preliminary consumer confidence for the month of April came in at -8.1 vs -11 as expected for the lowest reading since February of 2020 and thus indicating optimism around consumers that vaccine rollout will lead to lifting of restrictions soon which will in turn release pent-up demand. 

This week we will have preliminary Q1 GDP, which is expected to show a negative reading as well as preliminary April inflation reading. 

Important news for EUR: 

Friday:

• GDP
• CPI 

GBP 

Claimant count change in March came in at 10.1k and pulled down the rate to 7.3%. The official unemployment rate in February ticked down to 4.9% from 5% in January. The numbers are helped by the furlough scheme that is set to go on until September. It will keep the rate subdued in the meantime, after which it may jump toward 7%. Headline inflation for the same period rose to 0.7% y/y from 0.4% y/y in February with core reading coming in at 1.1% y/y from 0.9% y/y the previous month. Inflation readings are very much influenced by the base effect and we can expect inflation to continue to rise in the coming months. Lifting of certain restrictions in early March led to retail sales more than tripling the expectations (5.4% m/m vs 1.5% m/m as expected) and 7.2% y/y vs 3.5% y/y as expected. Non-food store provided the biggest boost with 13.4% rise in March while clothing sector also contributed with amazing 17.5% rise. These are additional indicators of pent-up demand that will be released as more and more restrictions are lifted and will have a positive impact on Q2 GDP growth. 

AUD 

RBA monetary policy minutes for April showed the bank’s stance to continue providing “highly supportive” monetary policy until employment and inflation goals are achieved. The possibility of a rate hike is highly unlikely until 2024 as board members do not see employment and inflation targets converging to their levels, inflation within 2-3% target range. During the week AUDUSD has rose over the 0.78 level on the back of weak USD. 

This week we will have Q1 inflation data from Australia as well as official PMI data from China. 

Important news for AUD: 

Wednesday:

• CPI

Friday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

Headline inflation for Q1 2021 came in at 0.8% q/q as expected and 1.5% y/y vs 1.4% y/y as expected. RBNZ sees inflation in the range of 2-3% for this year due to the transitory factors before dropping down in 2022. Core inflation came in at 1.9% y/y and is in line with the bank’s 1-3% target range. GDT price index came in basically unchanged at -0.1% while NZDUSD enjoyed a strong start to the week, climbing toward the 0.72290 level before backing down.

CAD

At their April meeting BOC has left the rate unchanged at 0.25% as expected but took a much more hawkish tone. First, QE was tapered from CAD4bn/week to CAD3bn/week. Additionally, GDP forecast has been revised up to 6.5% from 4% in January. Bank members stated "We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. Based on the Bank's latest projection, this is now expected to happen sometime in the second half of 2022". This is a huge event as it moves chances of potential rate hike and monetary policy normalization toward H2 of 2022 from 2023. Governor Macklem stated bank’s confidence in underlying economic strength adding that forward guidance is 'outcome based'. USDCAD plunged almost 150 pips after the announcement.

Headline inflation in March doubled to 2.2% y/y from 1.1% y/y in February. The main culprit was rising energy prices and ; if they were deducted headline CPI would have come unchanged at 1.1% y/y. Core readings were all up with Trim and Median being over 2%. BOC sees inflation hovering around the upper bound of their 1-3% range in the coming months as a result of base effects. However, “inflation should return to 2% on a sustained basis sometime in the second half of 2022”.

JPY

Trade surplus in March jumped to JPY663.7bn on the back of surging exports that rose 16.1% y/y thanks to the rise in exports to China (37.2%). Preliminary April PMI data showed manufacturing rise to 53.3, highest value in over 3 years, while services remained unchanged at 48.3. Composite was pushed to 50.2 for the first expansionary reading since January of 2020. Prefectures of Tokyo, Osaka, Hyogo, and Kyoto are looking for at least three weeks of state of emergency measures to be implemented in order to try to subdue the spread of the virus. With new measures being implemented, the services sector will soon be hit hard again and we may see a decline in services in the May PMI reading.

This week we will have BOJ meeting as well as inflation data for Tokyo area. No changes in the monetary policy are expected, however with prefectures entering new state of emergencies we could see more dovish tone being struck.

Important news for JPY:

Tuesday:

• BOJ Interest Rate Decision

Friday:

• CPI

CHF

SNB total sight deposits for the week ending April 16 came in at CHF701.5bn vs CHF701.3bn the previous week. With markets making EURCHF hover around the 1.10 level SNB sees no reason to step up their intervention. Trade balance data in March showed a surplus of CHF5.82bn on the back of rebound in exports 4.5% m/m.

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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.}