DXY positive as rate hike at next Fed meeting seems unlikely

Key Movers

The Reserve Bank of Australia decided to raise interest rates to 4.1%, the highest level since 2012, as the country battles inflation. The Consensus call was for no rate hikes, so this was a shock to the market. This is bullish for the Aussie dollar, and it is currently trading above most major currency pairs.

The European Central Bank (ECB) released its consumer expectations survey which showed inflation expectations for the next 12 months fell to 4.1% from 5.0% in March. Economic growth expectations for the next 12 months came in at a slight improvement of -0.8% from -1% in March. Overall, Eurozone participants seem to think inflation will be tamed and expect the economy to recover. Eurozone retail sales came in with no change month-over-month versus the expected 0.2% lift. Year-over-year, retail sales dropped 2.6% versus the -1.8% expected. Overall, the European economy is still lagging, this is likely due to higher interest rates.

Canadian building permits, a measure of the value of new building permits issued, came in significantly lower than expected at -18.8 versus the expected -5.0. This implies that there will be much less new construction across Canada in the coming months. The Ivey Purchasing Manager’s Index (PMI) measures month-to-month economic activity through a panel of purchasing managers. This figure came in below forecasts at 53.5 versus the expected 57.2 expected for May. This weaker figure strengthens the likelihood for the Bank of Canada to raise rates tomorrow.