Dollar Firm Despite Light News Stream

united states

  • The dollar is enjoying a firmer tone as the week winds down
  • Japan reported March CPI data
  • During the North American session, Canada reports February retail sales and March CPI
  • Taiwan March export orders rose 3.1% y/y vs. 0.3% expected; Brazil mid-April IPCA inflation is expected to rise 2.84% y/y

The dollar is mostly firmer against the majors as the week draws to a close. Loonie and sterling are outperforming, while the Antipodeans are underperforming. EM currencies are mostly weaker. TRY and PHP are outperforming, while RUB and IDR are underperforming. MSCI Asia Pacific was down 0.9%, with the Nikkei falling 0.1%. MSCI EM is down 1.1% so far today, with the Shanghai Composite falling 1.5%. Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open. The 10-year US yield is flat at 2.91%. Commodity prices are mixed, with oil up 0.3%, copper down 0.1%, and gold down 0.4%.

The dollar is enjoying a firmer tone as the week winds down. The euro is trading at its lowest level since April 9. Likewise, cable is trading at its lowest level since April 6. There is no real news stream behind these moves. For the week, NZD is the worst performer (-2%) whilst SEK is the best performer (+0.5%).

Higher US yields are lending support to the greenback. The 10-year yield of 2.93% posted yesterday was the highest since March 21, and it is hovering just below that today at 2.91%. The 2-year yield of 2.44% is the highest since 2008, and it too is hovering just below that today at 2.43%.

Japan reported March CPI data. Both headline (1.1% y/y) and core (0.9% y/y) measures were right at consensus, slowing from February. Next week, the BOJ will update its forecasts and include fiscal year 2020 for the first time. It must address the economic impact of the sales tax increase that is slated for October 2019. A 2% inflation forecast when the effect of the sales tax is excluded will be understood as confirmation of the timing of the BOJ’s exit from unconventional policies.

During the North American session, Canada reports February retail sales and March CPI. Sales are expected to rise 0.4% m/m, while headline CPI is expected to rise 2.4% y/y. The Loonie remain on its back foot after the BOC’s dovish hold Wednesday. While we still expect the next hike to come in Q3, the cautious tone from the BOC has led to some profit-taking in CAD. Retracement objectives form the March-April drop in USD/CAD come in near $1.2755, $1.2825, and $1.2900.

Taiwan March export orders rose 3.1% y/y vs. 0.3% expected. Other indicators suggest regional activity has been slowing in Q1.   While the orders data was an upside surprise, the series has nevertheless been slowing for several months. For now, low inflation and downside growth risks should keep the central bank on hold in 2018.

Brazil mid-April IPCA inflation is expected to rise 2.84% y/y vs. 2.80% in mid-March. If so, inflation would remain near the bottom of the 2.5-6.5% target range. The central bank signaled that the easing cycle would likely end after one more cut. Next COPOM meeting is May 16, and markets are pricing in one final 25 bp cut to 6.25%.