DXY Edges Higher on Fed Speak, JPY Weakens Past 156

Kiwi Dips Ahead of RBNZ Rate Decision, USD/EMFX Rally 

Summary:

Remarks from Federal Reserve Governor Waller that interest rate cuts are probably several months away lifted the Dollar Index (DXY) to 104.65 from 104.50 previously. 

On Tuesday, Atlanta Fed Governor Ralph Bostic said that it will take time before the US central bank is confident that inflation will return to 2%. Bostic reiterated that only one rate cut will be necessary this year. The Greenback strengthened modestly against most of its Rivals. 

Cleveland Fed President Loretta Mester that keeping rates restrictive is not so concerning right now, given the strength of the jobs market. 

The Fed speak lifted the Dollar above 156 Yen to 156.15 (155.55). Traders were cautious after Japanese Finance Minister Suzuki expressed concerns about the negative impact of a weak currency on wage hikes. Japan releases its April trade data and Core Machinery Orders today.

Ahead of today’s RBNZ interest rate decision, the Kiwi (NZD/USD) eased modestly to 0.6095 from 0.6130 previously. The RBNZ is expected to leave its Overnight Cash Rate at 5.5%. 

The Australian Dollar (AUD/USD) dipped against the broadly stronger Greenback to 0.6665 from 0.6695. The Aussie hit 4-month highs (0.6714) after the RBA considered raising rates in May before deciding to maintain a steady policy. Higher metal prices supported the Aussie Battler. 

The Euro (EUR/USD) eased to 1.0855 (1.0870) after ECB President Christine Lagarde indicated that an interest rate cut is probable next month, confident that they have inflation under control. 

Sterling (GBP/USD) was little changed, settling at 1.2707 (1.2700). The British Pound traded to an overnight high at 1.2727 against the overall weaker Dollar before easing to its New York close. 

The Greenback rallied against the Asian and Emerging Market currencies (EMFX). USD/CNH (Dollar-Offshore Chinese Yuan) climbed to 7.2475 from 7.2340. The USD/THB (Dollar-Thai Baht) pair soared to 36.40 (36.15). USD/SGD (Dollar-Singapore) edged higher to 1.3470 (1.3450).

Bond yields dipped. The US 10-year treasury yield settled at 4.41% (4.42%). Germany’s 10-year Bund yield eased to 2.50% from 2.53%. The UK 10-year Gilt yield slid to 4.13% from 4.17%. 

Other data released yesterday saw the Eurozone Trade balance slide to +EUR 17.3 billion, lower than the downward revised previous +EUR 16.7 billion and estimates of +EUR 19.9 billion. 

Germany’s Producer Price Index (PPI) dipped in April to 0.2%, matching 0.2% previously but lower than expectations at 0.3%. UK CBI Industrial Orders Expectations fell to -33 from -23 previously. Canada’s Annual CPI matched forecasts, at 2.9% from an upward revised 3.2%. 

• USD/JPY – the Dollar soared above the 156.00 level to finish at 156.15, up from 155.55 previously. Overnight the USD/JPY pair traded to a low at 155.84 before rebounding to its close. Markets will be watching the release of trade and business activity data today.
• AUD/USD – the Aussie Battler eased against the broadly based stronger Greenback to 0.6665 from 0.6695 yesterday. Last week, the Aussie traded to a 4-month peak at 0.6714, supported by robust metal prices and a hawkish bent from the RBA.
• NZD/USD – The Kiwi dipped to 0.6095 from 0.6130 ahead of today’s RBNZ interest rate meeting. The New Zealand central bank is widely expected to keep the Overnight Cash Rate unchanged at 5.5%. Markets will focus on whether the RBNZ would begin cutting rates sooner than mid-2025 which was the starting point highlighted in February.
• EUR/USD – the Euro eased to 1.0855 from 1.0870 previously. The shared currency traded to an overnight high of 1.0875 while the overnight low recorded was at 1.0843. 
  ECB President Lagarde indicated that an interest rate cut is possible next month.

On the Lookout: 

Today’s economic calendar kicked off with New Zealand’s GDT (Global Dairy Trade) Price Index which rose to 3.3%, up from 1.8% previously. Japan follows with its April Balance of Trade (f/c -JPY 339.5 billion from JPY 366.5 billion – ACY Securities). Watch this set of data because of the huge difference in trade from March to April. Next up is Japan’s March Machinery Orders (m/m f/c -2.2% from 7.7%; y/y f/c 0.3% from -1.8% - ACY Finlogix). Also has a huge difference so watch for it. 

The RBNZ will announce its interest rate decision at 12 noon, Sydney time. New Zealand’s Overnight Cash Rate is widely expected to remain at 5.5%. Markets will be watching for the RBNZ press conference which follows the meeting. 

The UK kick off Europe with its UK April Inflation Rate (m/m f/c 0.2% from 0.6%; y/y f/c 2.1% from 3.2% - ACY Finlogix), UK April Core Inflation Rate (m/m f/c 0.7% from 0.6%; y/y f/c 3.6% from 4.2% - ACY Finlogix), UK April Public Sector Net Borrowing (f/c -GBP 15 billion from -GBP 11.02 billion – ACY Finlogix), UK PPI Input (m/m f/c 0.4% from -0.1%; y/y f/c -2.0% from -2.5% - ACY Finlogix) and UK PPI Output (m/m f/c 0.4% from 0.2%; y/y f/c 0.9% from 0.6% - ACY Finlogix) and finally UK Retail Price Index (m/m f/c 0.5% from 0.5%; y/y f/c 3.3% from 4.3% - ACY Finlogix). 

The US rounds up today’s data releases with its April Existing Home Sales (f/c 4.22 million from 4.19 million – ACY Finlogix). The Fed FOMC meeting minutes are released at 4 am Sydney time tomorrow (Thursday) at 4 am Sydney time. 

Trading Perspective:

Fed speak lifted the Dollar higher against most of its Rivals ahead of the Fed FOMC meeting minutes tomorrow morning. In the interim, traders will keep their focus on any remarks from central bank officials. Expect consolidation today in Asia and Europe ahead of tomorrow morning’s release of FOMC meeting minutes. 

The Dollar Index (DXY) edged higher to finish at 104.65 (104.50 previously). Look for immediate resistance at the 104.80 and 105.00 to cap any rallies. Immediate support comes in at 104.30 and 104.00. 

• USD/JPY– the Dollar renewed its rally against the Japanese currency, finishing at 156.15. On the day, look for immediate resistance at 156.50 and 156.80. The overnight high traded was 156.55. On the downside, look for immediate support at 155.80 (overnight low traded was 155.84). The next support level lies at 155.50 and 155.20. Look for consolidation in a likely trading range today of 155.70-156.70. Trade the range.
• AUD/USD– the Australian Dollar eased against the overall stronger Greenback to 0.6665 at the close of trade in New York. Look for immediate support today at 0.6630 and 0.6600. Immediate resistance can be found at 0.6690 (overnight high traded was 0.6679). The next resistance lies at 0.6720. Look for more choppy trade in the Aussie, likely between 0.6620-0.6720. Am neutral here, trade the range.
• GBP/USD – Sterling was little changed, settling at 1.2707 (1.2700). The British currency has immediate resistance today at 1.2730 (overnight high traded was 1.2727). The next resistance level lies at 1.2770. On the downside, look for immediate support at 1.2680 (overnight low traded was 1.2686). Look for the British Pound to trade a likely range of 1.2670-1.2770 today. Prefer to sell Sterling on strength given current levels.
• NZD/USD – with the focus on the RBNZ’s rate meeting and press conference following, expect the Kiwi to be in the limelight, at least in Asia, today. On the day, look for immediate resistance at 0.6110 (overnight high traded was 0.6111). The next resistance level lies at 0.6140. Immediate support can be found at 0.6075 (overnight low traded was 0.6076). The next support level lies at 0.6045 and 0.6015. Look for consolidation, likely between 0.6050 and 0.6130 today. Prefer to sell Kiwi on strength.

Happy trading and Wednesday all. 

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