Forex Major Currencies Outlook (May 31 – June 4)

USD 

Consumer confidence in May dropped to 117 from downward revised 117.5 in April. Expectations were for a 119 reading. Present situation improved while expectations category seriously deteriorated. This indicates that short-term outlook is positive but long-term there are concerns among consumers. Three major categories, homes, automobiles and major household appliances, all showed declines in the long-term revealing unease among consumers regarding inflation effects down the 6-months period. New home sales in April came in at 863k vs 950k as expected. With the average sale price rising 20.8% y/y consumers are right to be concerned about what the future brings. 

Preliminary April durable goods orders missed expectations and came in at -1.3% y/y. Headline reading was terrible, however core reading was the start. It rose 2.3% y/y vs 1% y/y as expected indicating that Q2 had a strong start. Additionally, March core reading was revised up to 1.6% y/y from 1% as previously reported. Q1 GDP reading was unchanged at 6.4% annualized. Personal consumption was higher at 11.3% vs 11% as preliminary reported with business investment now showing 10.8% vs 9.9% in the first reading. 

Fed’s preferred inflation metric PCE for April came in at 3.6% y/y, up from 2.4% in March. Core PCE came in at 3.1% y/y vs 1.9% y/y the previous month. Base effects are the main culprits for such a jump in inflation. Fed members’ comments will be closely watched. Will they continue with their assessment of inflation as transitory or will they show some concern regarding high numbers? Personal spending dropped to 0.5% m/m from 4.7 m/m in March while personal income plunged -13.1% m/m due to government cheques being handed the previous month.

This week we will have ISM PMI data as well as NFP on Friday. After a weak April reading expectations are for headline number to print over 600k with the unemployment rate dropping to 6%.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Final reading of German Q1 GDP came in at -1.8% q/q vs -1.7% as preliminary reported with -3.1% y/y vs -3% y/y as preliminary reported. Final reading provided us with more information about the components of the GDP. The main drag was private consumption which came in at -5.4% q/q. With Germany being heavily under lockdown during Q1, the drop is completely justified. Net exports also contributed to the drop while government consumption and capital expenditure had positive impacts on the GDP. Markets are looking ahead toward H2 and with ongoing vaccination and reopening as well as low Q1 reading we can see a bigger rebound in Q2 and beyond. Ifo data for May showed all components rising indicating growing optimism among managers regarding Q2 and H2. A small concern is that raw material prices are rising rapidly and that producers are planning to shift increasing costs to consumers, thus leading to inflation.

Economic sentiment continues to improve. It has now risen to 114.5, propelled by the rise in services sentiment. Services rose to 11.3 from 2.2 in April due to reopening and loosening up of restrictions. They are now at their pre-pandemic levels. Final consumer confidence came in at -5.1, up from -8.1 the previous month. This is the highest consumer confidence reading since 2019 indicating growing optimism among consumers going into the summer.

This week we will have preliminary inflation data for the month of May.

Important news for EUR:

Tuesday:

• CPI

GBP

Concerns regarding covid variant first identified in India were dragging the pound down in the first half of the week. France and Germany are now demanding quarantine for people arriving from the UK. Vaccination is progressing at high speed, however there is increase in cases for people younger than 30 years. BOE policy maker Vlieghe stated that the better view of slack in economy will be available once the furlough scheme ends. He also added that if there is a smooth transition from the furlough scheme early rate hike is possible. Hawkish comments gave boost to the pound up in the second half of the week.

AUD

Q1 capex data smashed expectations coming in at 6.3% q/q vs 2% q/q as expected. Equipment and machinery led the way with 9.1% q/q increase followed by buildings and structures with 3.8% q/q. Next week we will have Q1 GDP reading and these numbers showed a strong investment in the first quarter and will surely push it higher than expected.

This week we will have Q1 GDP data and RBA meeting. No changes in rate or policy are expected, however there may be a change in tone after their neighbours, RBNZ, came up with a hawkish stance. We will have both official and Caixin PMI data from China.

Important news for AUD:

Monday:

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

Tuesday:

• RBA Interest Rate Decision
• Caixin Manufacturing PMI (China)

Wednesday:

• GDP

Thursday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

Q1 retail sales printed another strong reading for the New Zealand economy. The reading came in at 2.5% q/q up from -2.6% q/q in Q4 and 6.8% y/y up from 4.6% in the previous quarter. Electrical and electronic goods were the biggest contributor, closely followed by recreational goods.

RBNZ has left cash rate, Funding for Lending and LASP programmes unchanged as was widely expected. The tone of the statement was decidedly hawkish and it shows bank’s projection that hikes of the cash rate may come in H2 of 2022, if data continues to be strong. This is similar to BOC’s timeframe for rate hikes. They have acknowledged that economic activity returned close to its pre-pandemic level. NZDUSD has jumped almost 80 pips after the statement was released and passed the 0.73 level. Some local New Zealand banks even see rate increases coming in May of 2022. Governor Orr stated that potential rate hikes are heavily dependent on the path of the economic recovery in New Zealand, adding that recovery is still highly uncertain, although downside risks have lessened.

CAD

BOC Governor Macklem stated that he is comfortable with lowering stimulus extended during the pandemic due to the domestic economy's resilience. He assessed tapering to be the right move for the economy and added that the economy still needs considerable monetary support. CAD gained against USD at the start of the week but then USD strength, due to the month-end rebalancing, caused the pair to rise above the 1.21 level.

This week we will have Q1 GDP and employment data.

Important news for CAD:

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate

JPY

Japan’s issues with the COVID outbreak continue to mount with the US issuing a “do not travel to Japan” advisory. The opening ceremony for Summer Olympic Games is approaching fast, it is scheduled for July 23, while state of emergency in Tokyo area and other prefectures was extended until June 20. Vaccination rate in Japan is around 7%, well below the average for developed countries. The wages subsidy programme has been extended till the end of July in order to help economy cope with the pandemic.

CHF

SNB total sight deposits for the week ending May 21 came in at CHF709.6bn vs CHF707.8bn the previous week. With EURCHF staying below the 1.10 level SNB is increasing their activity in markets.

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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.}