FX

The New Zealand dollar has been holding up well despite USD strength, continuing to find bids below .6000. With downside price momentum starting to ebb, grounds are building for near-term NZD/USD upside.

As one of the most liquid futures contracts worldwide that combines fundamentals and technical views, it compresses huge amounts of information to provide an instant guide on where markets see directional risks for short-term US interest rates.

Stickiness in services and domestic inflation, accompanied by continued resilience in labour market conditions, points to the likelihood of the RBA striking a more hawkish tone in its May monetary policy meeting, creating upside risks for the Australian dollar

The game for USD/JPY changed last week. The likely intervention from the BOJ on at least one occasion to support the Japanese yen, coupled with a large reversal in US bond yields, means the extremely successful strategy of buying dips may have run its course near-term.

The suspected intervention from the BOJ this week has changed the game for USD/JPY, placing a rather large barrier in the way of further upside at a time when US bond yields were already looking toppy.

New Zealand’s unemployment rate jumps more than expected despite a collapse in labour force participation, putting the Reserve Bank of New Zealand closer to cutting interest rates before the US Federal Reserve. NZD/USD fell sharply while AUD/NZD rose to new cycle highs.

EUR/USD looks tired ahead of key inflation and GDP data from the continent later Tuesday, struggling to hold the gains which took it to two-week highs on Friday.

The growth engine of the Chinese economy unexpectedly decelerated last month while Australian retail sales are growing at the weakest pace on record outside one-off economic shocks, putting AUD/USD under renewed pressure on Tuesday.

Australians are none the wiser as to what’s happening in the domestic labour market with another volatile jobs report creating more questions than answers. AUD/USD is largely unmoved, leaving offshore factors to remain in the driving seat.

USD/JPY upside looks limited in the near-term, hindered by narrowing interest rate differentials and perceived increased risk of Bank of Japan intervention. The stronger yen may add to growing downside momentum in the Nikkei 225, putting two of the strongest market trends in 2024 under threat.

New Zealand inflationary pressures continued to ease in the March quarter, although domestic prices remained uncomfortably sticky, likely keeping the prospect of rate cuts from the Reserve Bank of New Zealand a distant prospect.

Inflation remains key sticking point preventing interest rate cuts from the Reserve Bank of New Zealand, ensuring Wednesday’s first quarter consumer price inflation report will be closely watched by financial markets, especially should it print on the softer side of expectations.

Contrary to what you may expect, movements in AUD/USD on Tuesday may be dictated by the performance of Chinese financial markets rather than the latest batch of Chinese economic data including Q1 GDP.

Sitting at 34-year highs and with market positioning nearing extreme levels, further USD/JPY upside is likely predicted on two factors this week: ongoing US economic exceptionalism and no dramatic escalation in Middle Eastern geopolitical tensions.

With most major events scheduled outside the continent, EUR/USD direction looks set to be dictated by external influences next week. Preference is to sell rallies given the technical breakdown on Friday.

Whether you look at fundamentals or technicals, the case for USD/JPY is compelling. But the threat of BOJ intervention has not gone away, making for a tricky environment for traders to navigate. However, the volatility it generates creates multiple trade setups depending on your preferred timeframe.

The Kiwi dollar is pushing higher, potentially reflecting no escalation in dovish rhetoric from the RBNZ despite New Zealand sitting in a double-dip recession. It has an inflation mandate and inflation remains too high to justify lowering rates yet.