FX

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.

Bond markets make the financial markets go round, so when they provide a strong signal on how Wednesday’s US consumer price inflation report may be interpreted, every trader should sit up and take notice.

While it may be one of the smallest G10 FX central banks, what the Reserve Bank of New Zealand (RBNZ) lacks in size it more than makes up for in terms of market punch, often sparking major moves in the New Zealand dollar under the leadership of Governor Adrian ‘Shock and’ Orr. Wednesday's interest rate decision may be no exception.

AUD/USD remains a sell-on-rallies prospect in a week where interpretation of Fedspeak and US labour market data will dominate. It will be imperative for the US data to portray a message of continued economic strength to see meaningful downside materialise.

The threat of intervention from the BOJ has increased, likely limiting upside for USD/JPY in the near to medium-term. But extremely wide interest rate differentials and buoyant markets suggest it shouldn’t be significantly lower. It points to a stalemate for yen bulls and bears but opens the door for traders to play existing ranges.

There’s not much difference between the USD/CNH and USD/JPY on the weekly charts, other than the former appears to be lagging the latter right now. With the yen falling to fresh multi-year lows even with the threat of intervention from the BOJ, will the yuan be next?

Australia’s inflation report undershot expectations in February, although there’s still evidence of stickiness in underlying price measures. Markets reacted by bidding Australian government bonds which have pressured AUD/USD, seeing it test uptrend support. A break could see the Aussie revisit its 2024 lows.

Watch out for Japanese intervention, Tokyo CPI and US core PCE inflation data this week, as the dollar rebounds after a weaker start. USD/JPY technical analysis point to a bullish breakout

With the influence of the Chinese yuan stet to increase further, this primer looks at the PBOC's USD/CNY daily ‘fix’, an event every trader should become familiar with given its importance to currency markets.

Japanese officials are once again attempting to talk down the high-flying USD/JPY, arguing moves over the past few weeks do not reflect fundamentals but speculative activity. Sitting in a technical pattern that points the risk of substantial upside ahead, their weak yen headache may soon turn into a full-blown migraine.

A couple of Fed speakers and US core PCE price index are among the macro factors traders will be watching this week. The EUR/CHF is a more interesting euro pair to watch, while the EUR/USD technical outlook hinges on the 200-day average.

EUR/USD was poor last week, finding little benefit from the Federal Reserve delivering a dovish surprise at its March FOMC meeting. With little event risk to speak of in the week ahead, and trading through its 50-day moving average, selling rallies is favoured.