Daily Forex News by XtreamForex.com

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EUR/USD Stays Above 1.0650 as US Dollar Faces Fresh Sell-Off

The EUR/USD currency pair saw a modest increase, reaching 1.0672 in Thursday’s early Asian trading session. This rise was supported by a combination of renewed selling pressure on the US Dollar and a generally risk-acceptant market atmosphere. Key economic indicators set to be released later on Thursday include weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Index, the CB Leading Index, and Existing Home Sales. These data points are eagerly awaited by investors who are gauging the economic landscape.

Despite the upward movement of the EUR/USD, sentiments were tempered by comments from Federal Reserve Chairman Jerome Powell earlier in the week. Powell indicated that recent economic data do not provide much confidence that the Fed’s 2% inflation target will be met soon, suggesting a prolonged period of tight monetary policy which could strengthen the US Dollar in the short term. This hawkish outlook may limit the potential gains for the EUR/USD pair. Market predictions now reflect a nearly 71% expectation for a Fed rate cut in September, as per the CME FedWatch Tool.

Conversely, the European Central Bank (ECB) is showing signs of a more dovish policy stance. ECB policymaker Joachim Nagel hinted at a possible rate cut in June, although he acknowledged that inflation rates are still higher than desirable. Furthermore, ECB official Bostjan Vasle proposed that the deposit rate might be reduced to 3% by year’s end, down from the current record high of 4%, provided that the expected disinflation progresses. This potential easing in ECB policy could pressure the Euro and, by extension, the EUR/USD pair.

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AUD/JPY Rises on Strong Australian Consumer Inflation Data

The AUD/JPY currency pair continues its upward trajectory for the third consecutive day, recovering from initial losses earlier on Wednesday. This rally is supported by the release of unexpectedly strong Consumer Price Index (CPI) data by the Australian Bureau of Statistics (ABS), which significantly influences the Reserve Bank of Australia’s (RBA) monetary policy direction. The positive inflation figures have strengthened the Australian Dollar (AUD), boosting the AUD/JPY exchange rate.

The Australian Dollar’s rise is further propelled by a surge in risk appetite, reflected in the gains seen in the ASX 200 Index, particularly within the technology and healthcare sectors. This positive movement in Australian shares mirrors the upward trend on Wall Street, which has been buoyed by impressive corporate earnings reports that have generally uplifted market sentiment. Additionally, easing tensions in the Middle East have also contributed to the favorable market environment, creating a more robust appetite for riskier assets like the Australian Dollar.

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Apple’s Market Lead in China Slips as Q1 Shipments Drop 6.6%

Apple has been dethroned as the leading smartphone seller in China during the first quarter of 2024, according to preliminary data released by research firm IDC on Thursday. The company saw its smartphone shipments decline by 6.6% compared to the same period last year, amidst fierce competition that has reshaped the market dynamics.

In a closely contested race for market dominance, both Honor and Huawei have now edged out Apple. Honor experienced a rise in market share to 17.1%, while Huawei closely followed with a 17% share. Apple’s market share, in contrast, has slipped to 15.6%. IDC identifies a statistical tie in market share when the difference between companies is 0.1% or less, underscoring just how tight the competition has become.

This shift comes despite Apple’s attempts to regain traction through price promotions during the quarter. Arthur Guo, a senior research analyst at IDC China, noted in the report that these efforts were insufficient to counter the robust challenge posed by Android-based competitors.

Adding to Apple’s challenges, the overall smartphone market in China is on the rise, with total shipments increasing by 6.5% to reach 69.3 million units, as reported by IDC. This growth suggests a recovering market where competition is becoming increasingly stiff.

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USD/CAD Drops Below 1.3650 Amid Weaker US Dollar

The USD/CAD currency pair experienced a dip to 1.3645 during the early European trading hours on Monday, marking its lowest point in nearly three weeks. This decline was primarily driven by a weakening US Dollar (USD), which continues to be the dominant force influencing the pair, especially in the absence of significant economic data releases from Canada.

As traders turn their attention to the week’s key events, the spotlight intensifies on the Federal Open Market Committee (FOMC) meeting, scheduled to conclude on Wednesday. This meeting is crucial as it could provide insights into future monetary policy directions. Although no rate changes are anticipated at this meeting, the tone adopted by Fed Chair Jerome Powell and other committee members is expected to lean towards the hawkish side. Powell has previously emphasized the need for the central bank to be more confident that inflation is consistently trending towards its 2% target before considering any rate cuts.

The probability of a rate cut by the Federal Reserve has seen a noticeable shift in investor expectations. Last week, the likelihood of a rate reduction in July was pegged at 50%, but this has now dropped to 25%. By September, however, markets have priced in nearly a 60% chance of a rate cut, as per the CME FedWatch tool.

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USD/CAD Rises Above 1.3750 as Markets Await Fed Rate Decision

The USD/CAD currency pair was trading positively around 1.3778 on Wednesday during the early trading hours in Asia. The pair gained strength, influenced by weaker economic indicators from Canada and a robust US Dollar. Specifically, Canada’s Gross Domestic Product (GDP) for February underperformed expectations, growing only 0.2% month-over-month compared to the anticipated 0.3%, as reported by Statistics Canada. This slower growth rate, down from January’s 0.5% expansion, put downward pressure on the Canadian Dollar (Loonie).

On the other side of the pair, the US Dollar remained firm, trading above 106.30, supported by various economic reports and market sentiments. The focus now turns to the US Federal Reserve’s interest rate decision, anticipated later on Wednesday. Market consensus does not foresee a rate change at this meeting. However, Federal Reserve Chair Jerome Powell’s subsequent press conference is eagerly awaited for any insights into future monetary policy, particularly regarding the persistence of high rates.

Market expectations have shifted recently, with the CME FedWatch Tool indicating that the likelihood of a Fed rate cut in September has decreased to 44%, a significant drop from 60% earlier in the week. This adjustment reflects a more cautious approach by financial markets towards anticipating rate cuts, possibly underpinning the Dollar further.

Additionally, several key economic indicators are scheduled for release. These include the US ADP Employment Change, ISM Manufacturing PMI, and the Canadian counterpart from S&P Global. These reports could provide further clues about the economic health of both countries. The US economy showed mixed signals as the Conference Board’s Consumer Confidence Index dropped to its lowest since July 2022, indicating a decline in optimism among consumers. In contrast, the Employment Cost Index in the US for the first quarter of 2024 indicated a stronger-than-expected rise of 1.2% year-over-year, surpassing the consensus forecast of 1.0%.

Meanwhile, Canada’s economic prospects seem challenged, not only by internal metrics but also by external factors like oil prices. As the leading crude oil exporter to the US, Canada’s currency is susceptible to fluctuations in oil markets. Recently, declining oil prices have exerted additional selling pressure on the Loonie, complicating the economic outlook and potentially prompting the Bank of Canada to consider a rate cut in June to support economic growth.

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Asian Stocks Rise Post-Fed Decision; Yen Declines Resume

Most Asian stocks rose following comments from Federal Reserve Chair Jerome Powell, which tempered expectations for further interest-rate hikes. Meanwhile, the yen weakened after briefly surging, indicating possible intervention.

In market movements, equity indexes in Australia and Hong Kong saw gains, while Japanese stocks remained stable. U.S. stock futures experienced a rally, contrasting with a dip in European contracts. Market focus now shifts to forthcoming economic indicators, including euro-area manufacturing data and Apple Inc.’s earnings report.

The yen’s decline by as much as 1.1% against the dollar, following a sharp rise in New York, suggests doubts about Japan’s ability to counter further weakening despite its significant interest-rate gap with the U.S. Japan’s chief currency officer, Masato Kanda, refrained from commenting on potential market interventions.

The Federal Reserve maintained the federal funds rate at 5.25% to 5.5%. Powell indicated that a rate hike is unlikely without clear signs that current policies are insufficient to achieve a 2% inflation target. This stance suggests a cautious approach towards monetary policy, aimed at managing persistent inflation pressures.

On the currency front, the Bloomberg dollar index fell for a second consecutive day, influenced by lower U.S. yields post-Fed announcement. The euro remained steady after a slight increase the previous day.

Corporate earnings also highlighted market dynamics. ArcelorMittal SA reported better-than-expected results, and Apple’s upcoming earnings will provide insights into its performance amid a slowdown in China.

John Woods of Lombard Odier commented on the resilience seen in earnings, emphasizing the predominance of U.S. narratives in the current market environment.

Additional economic insights are expected with the release of April’s non-farm payroll data, with forecasts suggesting a stable unemployment rate of 3.8%. This could indicate persistent robust hiring trends, potentially challenging the Fed’s moderation efforts.

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EUR/USD Nears 1.0750 as Risk Appetite Rebounds

The EUR/USD pair continued its upward momentum, marking a third consecutive day of gains as it hovered around the 1.0730 level during Friday’s Asian session. This surge in the currency pair was fueled by a resurgence in risk appetite, particularly favoring risk-sensitive currencies such as the Euro. Investors found reassurance in the stabilizing risk sentiment, which preceded the eagerly awaited release of US Nonfarm Payrolls (NFP) data.

The upcoming NFP report for April is anticipated to reveal a reading of 243K, compared to the previous figure of 303K. Additionally, market attention is also focused on the release of Average Hourly Earnings and ISM Services PMI later in the day. These data releases are expected to provide further insights into the current state of the United States economy, influencing market sentiment and trading dynamics.

In the backdrop of these developments, Thursday’s release of US Initial Jobless Claims data for the week ending April 26 showcased no change from the previous week, holding steady at 208K. This figure, which stands as the lowest level in two months and notably below market expectations of 212K, could potentially afford the Federal Reserve greater flexibility in delaying interest rate cuts.

Shifting focus to productivity metrics, US Nonfarm Productivity exhibited a modest increase of 0.3% in the first quarter, following an upwardly revised 3.5% surge in the preceding quarter. However, this growth fell short of the anticipated 0.8% rise, marking the slowest pace of productivity expansion since the January-March quarter of 2023.

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USD/JPY Ends Three-Day Slide Above 153.50 as Yellen Warns on Currency Intervention

The USD/JPY pair staged a notable reversal during Monday’s Asian trading session, breaking a three-day losing streak. This upward movement was fueled by a modest recovery in the US Dollar (USD) and remarks made by US Treasury Secretary Janet Yellen regarding potential Japanese interventions from the previous week. Currently, the pair is hovering around 153.55, marking a 0.35% gain for the day.

Over the weekend, US Treasury Secretary Janet Yellen acknowledged the significant fluctuations in the Japanese Yen’s value but refrained from confirming whether Japan had intervened to support its currency. Yellen’s stance on potential Japanese interventions has exhibited variability over the past couple of years, often highlighting the importance of a Group of Seven consensus favoring market-driven currency rates. She stressed that interventions should primarily aim to reduce market volatility rather than manipulate currency values. In contrast, Japan’s Finance Minister Shunichi Suzuki has not verified any interventions, according to Bloomberg reports.

The speculation surrounding a potential interest rate cut by the US Federal Reserve (Fed) in September has intensified following the release of weaker-than-expected US employment data. This has contributed to some selling pressure on the Greenback. According to the CME FedWatch tool, traders are currently pricing in an 85.5% probability of no change to the Fed’s fed fund rate in June, while the likelihood of a rate cut in September has surged to 90%.

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Hong Kong Attempts to Attract Saudi Investment to Revitalize Stock Market

Hong Kong is actively seeking investment from Saudi Arabia to help rejuvenate its stock market, which has been facing multiple challenges. The city, known for its role as a global financial hub, is collaborating with the Saudi Tadawul Group to host a conference aimed at attracting fresh stock listings and fund inflows. This comes at a crucial time when Hong Kong needs to bolster its financial status.

The upcoming forum is not only an opportunity for Hong Kong but also for Saudi company officials who are keen on increasing their exposure to Asian markets. According to industry analysts, there is a significant political push fostering closer relations between China, including Hong Kong, and Gulf countries. Chinese businesses have expressed a keen interest in the Middle East, looking for new investment avenues to explore in the region.

This strategic conference highlights Hong Kong Exchanges & Clearing Ltd.’s efforts to attract new investors as part of its broader strategy to diversify its investor base amid reduced interest from U.S. and European investors due to rising geopolitical tensions. 

Last month, the nation’s securities regulator announced initiatives to encourage more companies to launch initial public offerings (IPOs) in Hong Kong, amidst a challenging period marked by a slow Chinese economy and increasing tensions between Beijing and Washington. These factors have led to a decline in investor interest and a significant drop in funds raised through IPOs, reaching a low not seen since 2009.

Bonnie Chan, CEO of Hong Kong Exchanges & Clearing, remains optimistic about the resurgence of significant IPOs in the city, with 100 applications currently in the pipeline and more expected. The recent uptick in applications has provided a hopeful outlook for the market’s recovery.

On the other side, Saudi Arabia sees clear benefits in tightening relations with China. Under the kingdom’s Vision 2030 agenda, spearheaded by Crown Prince Mohammed bin Salman, Saudi Arabia aims to increase foreign ownership and enhance liquidity in its stock markets. The Saudi market has shown robust growth, with the market capitalization increasing by 11% over the past three years, contrasting sharply with Hong Kong’s 25% decline. The Riyadh stock exchange has consistently performed well, attracting significant foreign investment, particularly after its inclusion in MSCI Inc.’s emerging-markets equities benchmark in 2019.

Recently, Hong Kong introduced the CSOP Saudi Arabia ETF, the first such exchange-traded fund in Asia, allowing investors to tap into the Saudi market. Despite a strong start with backing from Saudi Arabia’s sovereign wealth fund, it has seen modest fund inflows. Efforts are underway to cross-list this ETF in Shanghai to enhance accessibility for Chinese investors, who are increasingly recognizing the investment potential in the Middle East.

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EUR/USD Climbs as Weakening Labor Market Data Pressures US Dollar

The EUR/USD pair remains confined within a narrow trading range just beneath the critical resistance level of 1.0800 during Friday’s European trading session. This comes after the pair rebounded sharply from 1.0725. Despite the relative calm, the currency pair maintains its strength, with investors appearing to have fully absorbed the anticipation that the European Central Bank (ECB) will commence its rate reduction process starting in June.

The ECB is currently facing internal divisions regarding the extension of the rate-cutting cycle beyond the initial June reduction. Some members of the ECB are concerned that further rate cuts starting in July could reignite inflationary pressures. This perspective was highlighted by ECB policymaker and Governor of the Bank of Greece, Yannis Stournaras, during an interview with a Greek media outlet last week. Governor Stournaras projected three rate cuts for the year, noting that the economic recovery observed in the first quarter supports the likelihood of this scenario over a potential four cuts. The Eurozone’s economy outperformed expectations in the January-March period, posting a growth rate of 0.3% compared to the anticipated 0.1%.

In contrast, ECB Governing Council member and Governor of Austria’s central bank, Robert Holzmann, expressed a more cautious stance. In remarks reported by Reuters on Wednesday, Governor Holzmann indicated his reluctance to lower key interest rates “too quickly or too strongly,” citing the need for a more measured approach.

This week, the EUR/USD pair’s movement has largely been influenced by overall market sentiment, due in part to a lack of significant economic data from both the Eurozone and the United States. However, the focus is set to shift dramatically next week with the release of the U.S. Consumer Price Index (CPI) data for April, scheduled for Wednesday. This critical indicator is closely monitored as it provides significant insights into inflation trends, which are integral to the Federal Reserve’s policy decisions.

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Gold Price Rises in Anticipation of US PPI Data and Fed Chair Powell’s Speech

The gold price (XAU/USD) experienced a modest rebound on Tuesday, even as the US Dollar (USD) remained stable, signaling a potential restraint in the metal’s upward movement. This cautious trading comes as market participants are likely to adopt a wait-and-see approach in anticipation of significant US inflation data expected later in the week. Despite some selling pressure on XAU/USD in recent sessions, driven by the prevailing sentiment of maintaining higher US interest rates for an extended period, other factors are at play that could enhance gold’s appeal temporarily.

Particularly, rising tensions in the Middle East have prompted investors to seek safety in gold, which is traditionally viewed as a secure asset during geopolitical uncertainties. This safe-haven demand could support gold prices in the short term, counterbalancing some of the downward pressure from the US monetary policy outlook.

The focus for investors this week will be on critical economic data releases from the United States. Notably, the US Producer Price Index (PPI) for April is scheduled for release on Tuesday, coinciding with a speech by Federal Reserve Chair Jerome Powell. The market’s attention will then shift to the Consumer Price Index (CPI) report on Wednesday. These data points are crucial as they provide insights into inflation trends, which are central to the Federal Reserve’s decision-making process regarding interest rate adjustments.

If the inflation figures come in hotter than expected, they could dampen hopes for an imminent Fed rate cut, exerting further pressure on gold prices. Higher interest rates tend to diminish the attractiveness of non-yielding assets like gold, as they increase the opportunity cost of holding such assets. Investors typically seek higher returns from yield-bearing investments when rates rise, reducing the investment demand for gold.

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Gold Prices Rise Amid US CPI Inflation and Fed Rate Cut Expectations

Gold prices (XAU/USD) gained traction on Thursday, driven by a weaker US Dollar (USD). The recent Consumer Price Index (CPI) report revealed that inflation in the US slowed in April, leading market participants to increase their expectations for US Federal Reserve (Fed) rate cuts this year. Lower interest rates tend to benefit gold, as they reduce the borrowing costs associated with investing in the yellow metal.

On Thursday, gold traders will be closely monitoring several key economic indicators, including US Building Permits, Housing Starts, weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Industrial Production. These data points will provide insights into the health of the US economy and potential future Fed actions.

In addition to economic data, several Fed officials, including Barr, Harker, Mester, and Bostic, are scheduled to speak on Thursday. Their comments could influence market sentiment and the USD’s performance. Hawkish remarks from these officials could strengthen the USD and limit gold’s upside potential in the short term. 

Despite the potential for hawkish Fed commentary, the overall outlook for gold remains positive due to the market’s anticipation of rate cuts. Lower interest rates make non-yielding assets like gold more attractive to investors, as the opportunity cost of holding gold decreases.

As traders await further economic data and Fed speeches, the interplay between inflation expectations, Fed policy, and USD movements will continue to be crucial in shaping gold prices. If the economic data points to a weakening US economy or if Fed officials signal a dovish stance, gold could see further gains. Conversely, strong economic data or hawkish Fed comments could strengthen the USD and limit gold’s upward momentum.

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Japan Wary of Weak Yen’s Downsides, Finance Minister Notes

Japanese Finance Minister Shunichi Suzuki expressed concerns on Tuesday about the current depreciation of the yen, emphasizing the negative effects more than the positives. Suzuki highlighted the challenges posed by a weak yen, including increased costs for companies and consumers due to higher import prices, during a session with a parliamentary committee.

Suzuki pointed out that Japan’s economic policy aims to secure wage growth that outpaces price increases. Given this goal, the adverse impacts of the yen’s weakness are currently a more significant concern for the government.

Furthermore, Suzuki confirmed that Japanese authorities would maintain vigilance over the currency’s influence on the economy and households, and would take necessary actions as required.

The yen has been performing poorly, hovering around 157 per dollar, with a recent position at 156.80 per dollar during early trading in Asia on Tuesday.

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USD/CAD Rises to 1.3650 Amid Decline in Oil Prices

The USD/CAD pair has edged higher for the second consecutive day, trading around 1.3650 during Asian hours on Wednesday. This upward movement is driven primarily by a growing sense of risk aversion among investors, which is bolstering demand for the US Dollar (USD) and, in turn, supporting the USD/CAD pair.

On Tuesday, risk sentiment soured following comments from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis. Kashkari indicated that a rate hike might still be on the table, suggesting uncertainty about the disinflationary process and predicting only two rate cuts. This hawkish stance has increased speculation about potential future rate hikes, contributing to the appreciation of US Treasury yields and strengthening the Greenback.

The US Dollar Index (DXY), which measures the USD against six major currencies, was trading higher around 104.70. Concurrently, the yields on 2-year and 10-year US Treasury bonds stood at 4.96% and 4.54%, respectively, further supporting the USD. Additionally, recent economic data showed that the US Housing Price Index (MoM) for March underperformed, coming in at 0.1% compared to 1.2% in February and below the expected 0.5%. Market participants are now looking forward to remarks from New York Fed President John Williams and the release of the Fed’s Beige Book, which will provide insights into the current US economic situation based on a variety of sources.

On the Canadian front, the Canadian Dollar (CAD) faced pressure due to a downward correction in crude oil prices. As Canada is a major oil exporter to the United States, fluctuations in oil prices significantly impact the commodity-linked CAD. Despite this, Canada’s Industrial Product Price Index showed a 1.5% month-over-month increase in April, surpassing market forecasts of 0.6% and reaching a new eight-month high. This follows an upwardly revised 0.9% increase in March. Additionally, the Raw Materials Price Index rose by 5.5% month-over-month in April, up from a previous rise of 4.3% and above the expected increase of 3.2%.

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European Futures Decline Amidst Rising Yields and Market Downturn

European stock markets appeared poised to mirror the declines seen in Asia, as rising US Treasury yields near this year’s peak continued to restrain risk appetite among investors. The Euro Stoxx 50 futures fell by 0.4%, reflecting a similar downturn in US equity futures. The MSCI Asia Pacific Index dropped to a three-week nadir, with markets in South Korea and Japan experiencing significant losses.

This week marks a challenging period for global equities, potentially recording their poorest performance since mid-April. The mood has been dampened further by recent comments from Federal Reserve officials, which have cast doubt on the anticipated timeline for interest rate reductions. This uncertainty, coupled with high bond yields following a lackluster $44 billion auction of seven-year US Treasury securities, has contributed to market anxieties.

As Friday approaches, investors are keenly awaiting inflation reports from both the US and Europe. These reports are critical as they may significantly influence the future direction of monetary policies. According to Tony Sycamore, a market analyst at IG Australia Pty Ltd., “The market is currently overshadowed by the bond market’s influence and rising yields. The primary concern now shifts towards managing the potential risks of unexpectedly high inflation figures from the US or Europe.”

In the Asian markets, Treasury yields saw a slight decline after a significant increase of six basis points in the previous session. The weak auction results have exacerbated concerns that financing the US’s substantial deficit will continue to push yields higher, especially as the Federal Reserve shows no immediate signs of reducing rates. Meanwhile, Australian bond yields have also risen.

The US dollar strengthened for the third consecutive session, adversely affecting Asian currencies. In Japan, the yen showed some recovery after dropping past 157.52 against the dollar, a move that had earlier prompted suspected intervention by monetary authorities. Japanese 10-year bond yields also managed to recover from earlier losses.

In China, the onshore yuan remained stable after hitting its lowest since November the previous day. In South Africa, the rand continued to weaken as the country progressed with its election vote count.

Eric Johnston from Cantor Fitzgerald noted, “The primary drivers of rising bond yields seem to be the bond supply and the ongoing large deficits rather than concerns over inflation or a robust economy.”

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USD/CAD Nears 1.3700 Before US PCE, Canada GDP Data

The USD/CAD pair is seeing a rebound, trading near 1.3690 during Friday’s Asian session, after halting its recent downtrend. This comes as the US Dollar strengthens in anticipation of the release of the Core Personal Consumption Expenditures (PCE) Price Index, a key inflation measure favored by the Federal Reserve, set to be announced later today.

In the US, the GDP growth for the first quarter was revised down to 1.3% from an initial estimate of 1.6%, leading investors to speculate on the possibility of a more dovish approach by the Federal Reserve. This revision has introduced some uncertainty regarding potential rate cuts in September. Furthermore, the US reported an increase in Initial Jobless Claims for the week ending May 2, with figures rising to 219,000 from 216,000 the previous week, surpassing the anticipated 218,000.

The lower yields on US Treasury bonds could potentially restrain the US Dollar’s gains. The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is currently trading higher at around 104.80. Specific yield rates show the 2-year and 10-year Treasury yields at 4.92% and 4.54%, respectively.

Conversely, in Canada, diminishing prospects of a rate cut by the Bank of Canada (BoC) in June are evident, influenced by fresh data highlighting sustained price pressures. April saw a significant jump in producer prices by 1.5%, following a 0.9% increase in March, almost double the forecasted 0.8%. The likelihood of a 25-basis point cut at the BoC’s next meeting has decreased to 34% from 46% just a week earlier.

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USD/CAD Dips Below 1.3650 Ahead of US/Canada PMI Data

The USD/CAD currency pair displayed a slight downward trend in early Monday trading in the European session, hovering around 1.3625. This movement was primarily driven by a weakening US Dollar following the latest US Personal Consumption Expenditures (PCE) Price Index data. Market focus now shifts to the upcoming release of the Canadian S&P Global Manufacturing PMI and the US ISM Manufacturing PMI for May, both set to be disclosed later in the day.

In the US, inflation rates stabilized in April, fueling speculation that the Federal Reserve might lower interest rates later this year, which could further impact the dollar’s strength. The Commerce Department reported that the PCE rose by 0.3% month-over-month in April, consistent with March’s figures. The Core PCE, which excludes the more volatile prices of food and energy, saw a slight increase of 0.2% month-over-month in April, down from 0.3% in March. Year-over-year, the core PCE price index held steady at a 2.8% increase for the third consecutive month. Following the inflation report, market expectations for a Fed rate cut in September have increased, now standing at nearly 53%, up from 49%.

On the Canadian side, the economy showed signs of weakness with its first-quarter GDP growth figures. The GDP expanded by an annualized rate of 1.7%, which not only fell short of the anticipated 2.2% growth but also did not meet the central bank’s projection of 2.8%. This disappointing data prompted the Bank of Canada (BoC) to cut interest rates last Wednesday. Additionally, the Canadian Dollar is under pressure due to falling crude oil prices, a critical factor given Canada’s status as the largest oil exporter to the United States.

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China’s Yuan Falls Despite Gains Across Asian Markets

On Tuesday, the Chinese yuan experienced a decline against the dollar, diverging from the general upward trend seen in other Asian currencies. This occurred despite a broader weakening of the greenback, influenced by factors such as foreign dividend payments and ongoing economic concerns.

Before the markets opened, the People’s Bank of China set the daily midpoint rate for the yuan at 7.1083 per US dollar, marking its strongest position since May 22. This rate is central to the managed floating exchange rate system that allows the yuan to fluctuate within a 2% range above or below the midpoint.

In the spot market, the onshore yuan started the day at 7.2400 per dollar. By midday, it had weakened to 7.2456, showing a slight decrease of 43 pips compared to the previous session’s close and standing 1.93% weaker than the midpoint.

Despite recent policy efforts to stimulate the property market, these measures have not managed to sustain capital inflows, according to analysts. HSBC noted that while there have been short-lived increases in equity inflows due to policy changes favoring property, these have not been maintained. On the other hand, there has been a more consistent outflow of funds due to onshore demand for foreign exchange and investments in offshore equities through the southbound trading link.

Additionally, the Chinese blue-chip CSI 300 index has shown signs of weakening after initially rebounding from five-year lows in February. This suggests investor fatigue and uncertainty regarding the effectiveness of the government’s support measures for the market.

Another factor contributing to the yuan’s decline is the seasonal demand for foreign currency by overseas-listed Chinese companies needing to cover dividend payouts. This demand typically leads to selling of the yuan in exchange for foreign currencies.

Market watchers are now looking forward to upcoming U.S. economic indicators, including the ISM services PMI and nonfarm payrolls data, which will provide further insights into the potential adjustments in U.S. interest rates.

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RBA Governor Bullock Predicts ‘Quite Low’ March GDP Numbers

Reserve Bank of Australia (RBA) Governor Michele Bullock has indicated that a rebound in inflation or persistently high price pressures could necessitate further interest rate hikes. Speaking at a senate estimates hearing, Bullock emphasized the RBA’s readiness to act if inflation remains uncomfortably high, stating that the central bank would not hesitate to increase rates again to control rising prices.

Conversely, Bullock noted that if economic growth were significantly lower than expected, the RBA would consider cutting interest rates to stimulate the economy. She highlighted the importance of monitoring economic indicators closely to determine the appropriate monetary policy response.

Bullock also projected that economic growth would be “quite low” in early 2024. The March quarter national accounts are expected to show minimal growth, with economists predicting a mere 0.2% expansion in the first quarter of 2024. This figure would result in an annual growth rate of just 1.2%, the weakest performance outside the pandemic since the 2000 dot-com bust. When questioned about the concept of a per capita recession, Bullock dismissed the term, stating that it does not accurately reflect job losses and economic difficulties.

In addressing budgetary questions, Bullock avoided labeling Treasurer Jim Chalmers’ May budget as either expansionary or contractionary, citing the complexity of the issue. She argued that various domestic and international factors influence Australia’s economic conditions, not just fiscal policy. Treasury Secretary Steven Kennedy also declined to provide a definitive answer on the budget’s impact during a similar inquiry.

Bullock reassured that federal and state energy rebates would not significantly impact underlying inflation. Despite concerns from some economists that the savings from the rebates might boost spending and inflation, Bullock believes the effect will be minimal. The May budget included a $300 energy rebate for households, which Treasury estimates will reduce headline inflation by 0.5 percentage points.

Under questioning from Liberal Senator Dean Smith, Bullock affirmed that the RBA would not rule out raising interest rates during an election campaign if necessary. The central bank’s decisions will continue to be driven by economic data.

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USD/CAD Holds Above Mid-1.3600s Ahead of US NFP

The USD/CAD pair is showing resilience below the 200-hour Simple Moving Average (SMA), but it seems to struggle to attract any significant buyers during the Asian session on Friday. Currently, spot prices trade with a mild positive bias, hovering around the 1.3670 area. Traders are keenly awaiting the release of the US monthly employment details before making fresh directional bets.

The much-anticipated Nonfarm Payrolls (NFP) report is expected to reveal that the US economy added 185,000 jobs in May, up from 175,000 in the previous month. Additionally, the unemployment rate is projected to hold steady at 3.9%. This data, along with Average Hourly Earnings, will play a crucial role in shaping the inflation outlook and the Federal Reserve’s future policy decisions. Consequently, this will influence the demand for the US Dollar (USD) and provide fresh directional impetus to the USD/CAD pair.

As the market heads into this key data risk, participants have been pricing in a higher probability that the Federal Reserve will begin cutting interest rates in September due to signs of a slowdown in the US economy. This expectation has kept US Treasury bond yields and the USD under pressure. Moreover, this week’s rebound in Crude Oil prices has supported the commodity-linked Canadian Dollar (CAD), further capping the USD/CAD pair’s upside.

Meanwhile, the Bank of Canada (BoC) recently lowered its benchmark rate for the first time in four years, from a more than two-decade high, expressing concerns about slowing economic growth. The central bank also acknowledged improvements in underlying inflation, fueling speculations about another rate cut next month. This development could limit the Canadian Dollar’s gains and act as a supportive factor for the USD/CAD pair.

Given the mixed fundamental backdrop, aggressive traders should exercise caution, as the USD/CAD pair is more likely to continue its range-bound price action on the last trading day of the week. Despite this, spot prices remain on track to register modest weekly gains, although they stay within a familiar range held since early May.

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