The US Dollar is looking to US industrial production data and the UofM consumer confidence gauge to inform Fed rate hike timing speculation.
Talking Points:
US Dollar Looks to Industrial Production, UofM Data to Inform Fed Outlook
Aussie, NZ Dollars Drop Amid Deteriorating Policy Expectations Overnight
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The US Dollar corrected higher in overnight trade after sliding to a four-month low in the preceding session. The Australian and New Zealand Dollars underperformed in moves that appeared linked to deteriorating monetary policy expectations.
Narrowing bond yield spreads pointed to the two currencies’ deteriorating return advantage relative to the greenback in the minds of investors. Meanwhile, OIS-based measures of the priced in 12-month RBA and RBNZ policy outlooks shifted downward. In the case of New Zealand, traders’ expectations are now the most dovish in over six years, leaning toward two interest cuts between now and this time next year.
Looking ahead, a quiet economic calendar in European trading hours is likely to see markets looking ahead to US news-flow in the final hours of the trading week. April’s Industrial Production report and May’s preliminary University of Michigan Consumer Confidence gauge are on tap.
US economic data has been stabilizing relative to consensus forecasts since late March following a period of steep weakening set off in January. If this year’s downturn proves to be as similar to last year’s first-quarter slump as it seems to be, expectations that the Federal Reserve may yet stick with its original timeline and raise rates mid-year could re-emerge.
With that in mind, traders will monitor data outcomes closely for signs of recovery in the second quarter. Such evidence stands to boost the US unit. Alternatively, soft results reinforcing the recent dovish shift in FOMC policy expectations may encourage continued unwinding of long-USD exposure.
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