The USD dollar could take its cue from Powell’s 60-minute interview: The Week Ahead

Powell’s comments on Sunday could have a direct impact on sentiment at the weekly open. If markets perceive the interview to be dovish, the US dollar could remain on the ropes and risk could rally, helping EUR/USD, AUD/USD etc to extend their gains from Thursday. Also note the RBA’ cash rate meeting on Tuesday along with quarterly forecast and press conference. Whilst no change is expected, any hints of a cut could drive market sentiment for the Australian dollar and ASX 200.

US dollar index analysis (weekly chart):

The US dollar index rose for four consecutive weeks in line with my bias, which was based on the assumption that market pricing was aggressively leaning for more cuts than the Fed would have the stomach for. So far, that has worked well. Yet sentiment has shifted with markets not retaining a similar dovish curve, but for cuts to begin in May.

The US dollar index met resistance around the 50% retracement level between the October high to December low. It is also on track for a bearish engulfing week, ahead of Friday’s nonfarm payroll report. Given the lack of bullish momentum with last week’s Doji, I am coming around to the prospects for a pullback.

The week that was:
The week ahead (calendar):
The week ahead (key events and themes):

The week that was:

The Fed held interest and Jerome Powell effectively killed any speculation of a cut in March
Yet Fed Fund futures my imply four 25bp cuts at consecutive meetings, beginning in May
60-minutes announced a pre-recorded interview with Jerome Powell will be aired at 19:00 on Sunday, which took place after the latest FOMC decision
Headline CPI figures for Australia were all lower than expected, which saw RBA cash rate futures fully price in a 25bp cut June
The IMF upgrade their growth outlook for 2025 and noted that inflation was softening at a faster pace than expected
ISM manufacturing contracted at its slowest pace in 15 months whilst new orders and prices paid expanded.

The week ahead (calendar):

The week ahead (key events and themes):

Jerome Powell’s pre-recorded interview with 60 minutes
RBA cash rate decision
ISM non-manufacturing
China CPI and loan demand data

Jerome Powell’s pre-recorded interview with 60 minutes

It has just been tweeted by 60 minutes on social media that Jerome had a post-meeting interview with 60 minutes, which is to be aired on Sunday 19:00 EST. Given the Fed pushed back on a March rate cut and market pricing now favours four back-to-back cuts from May, the timing of Powell’s interview is really quite interesting. Will he concede and vindicate dovish pricing? Or is it just another opportunity to push back against current market expectations?

In April 2021, Powell told 60 minutes that the US economy was at “an inflection point”. And perhaps infamously, said the Fed would be cautious in raising rates as to not hinder the economic recovery, and downplayed concerns of inflation. Oops.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

ISM non-manufacturing

Whilst ISM manufacturing suggests a trough for the sector, ISM services is on the brink of contracting for the first time since the pandemic in 2020. And this seems quite significant when you consider that the ISM services headline number has barely spent any time below 50.

If it were to cross beneath 50 to denote contraction and is coupled with slower ‘new orders’ and ‘prices paid’, it could further weaken the US dollar on bets that the Fed will begin cutting rates in May. But if it contracts too fast and prices and new orders also tank, the recession alarm bill could ring and stock markets might actually see bad news as ‘bad’, for the first time in a while.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

RBA cash rate decision, press conference and forecasts

The RBA will release their quarterly SOMP alongside their rate decision on Tuesday, and hold their first post-meeting press conference in response to the RBA review.

Given that Governor Michelle Bullock fumbled the RBA's message during her first couple of public talks, could nerves play a part and sew further confusion over the RBA’s policy? Intentional or not, any hint of a cut could send the Australian dollar lower and the ASX200 to a record high.

Regardless, it seems unlikely that the RBA will cut rates on Tuesday, even if Australian CPI came in softer than expected. But I’m keen to see if or how the RBA acknowledge the softer inflation numbers in their statement or press conference, as it could indicate cuts are in discussion. As could any change to their forecasts.

Note that quarterly retail trade figures will be released three hours to the RBA’s announcement, although it would have to print some pretty severe figures for it to have any impact on their decision.

Trader’s watchlist: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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