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The FOMC as expected left interest rates unchanged yesterday

By OFX

The Federal Reserve left rates unchanged yesterday which was expected, therefore market participants were looking to the statement for cues to trade off of. The report referenced that inflation was moving toward the Fed 2% target at a manageable pace, signaling that the Fed has room to tighten further down the road without the worry of inflation running away. The greenback made initial gains against it trading peers before settling down to levels before the announcement. The focus now moves to US jobs with Non-Farm Payroll numbers tomorrow with forecasts of 198k well above last month dismal 103k; a good number will support the greenback and signal further tightening from the Fed. The dollar index which is the gage of the US dollar against a basket of currencies up 1.05% in a week and 2.62% over the month.

Attention will now be focused on the evolution of interest rates, specially Treasury yields, with the curve steepening a bit following a mild increase in the long-end part. Also, US Treasury Secretary Steven Mnuchin will be holding trade talks in Beijing with Chinese Vice Premier Liu He.

The Canadian dollar continues to be well entrenched in a trend channel from 1.2815 to 1.2885 against the greenback. Economic data has been sparse, and when we have releases that support a stronger loonie, they are countered by robust US data. Today is the release of Canadian trade balance figures, and the consensus for the March number is for imports to exceed exports with a reading of -2 billion narrowing the gap from the previous month by 690 million. The next primary fundamental to be reported are Canadian job numbers which are released the first Friday of the month, but only if the Friday as a full week behind it. Therefore tomorrow US jobs are reported with no counter from Canada until next Friday.

The delay on the Canadian jobs report would give market participants a chance to move the USDCAD pair in a new direction depending on the data tomorrow. The Canadian dollar albeit trading sideways against the big dollar has gained solid ground against its European counterparts with moves of 2.66% against the pound and 2.33% against the euro in a week.

EURUSD fell almost 0.4% to trade close to a three-month low of 1.1938. It managed to sell above the critical 1.20 level after the initial USD drop following the FOMC statement, reaching 1.2020.

Unemployment and GDP data came as expected but that didn’t help the Euro, which was probably also affected by weakness in some Eastern European currencies after the European Commission proposed fund cutting to bloc countries in their new budget.

The 200-day moving average has moved up a little bit and now sits at 1.2015, which might act as next resistance level. The EURUSD is opening a tad stronger around 1.1960, bouncing from last session lows from around 1.1940, not so far from the year’s low of 1.1916.

After a slew of mediocre data, there was finally some good news for pounds-bulls yesterday as the monthly Markit/CIPS UK Construction PMI showed a strong rebound for April after March’s dismal, snow affected reading. The survey printed 52.5 up from 47 in March however the authors noted it was “difficult to gauge underlying momentum” given how poorly the sector was hit by the Beast from the East. Today brings the key Services PMI which is again expected to show an uptick from March.

The consensus is a solid but pretty unspectacular 53.5, and anything higher should add support to the pound which has managed to get its head back above 1.36 vs. the dollar this morning.

Enjoying a more stable day when compared to the carnage which has been witnessed for much of the past week, the Australian dollar has been more settled over the past 24 hours. Doing well to navigate an intricate overnight session which included updated signals from the US Federal Reserve, policymakers showed that they remain in no rush to accelerate rate rises, despite the emergence of inflation from the world’s largest economy. 

With the tide still very much favoring the US dollar, energies today will turn to Building Approvals as well as Trade Balance numbers from Australia as investors look to capture levels back up above the 75 US cents barrier. The Australian dollar strengthened versus its US Counterpart at a rate of 0.7525 overnight.

The New Zealand dollar saw further pressure over the last twenty-four hours as mixed domestic data pushed the local currency to close underneath the 70 US cent handle for the first time this year. Opening the day above support levels, the Kiwi hung on to intraday gains after the NZ unemployment rate hit the lowest level in a decade at 4.4% in line with expectations. Total Jobs for the quarter grew by 15,000 jobs and 0.6% for the quarter. 

Overnight he NZD/USD cross saw eventual highs of 0.7043 but could not hang onto any sustained rallies as investors sold off the Kiwi in droves as US Dollar strength continues to be the main drivers this week. Markets saw an overnight low of 0.6986 and the New Zealand Dollar opens this morning at 0.7035.