FX market outlook

FX market outlook

Aussie pressured by weak retail sales; greenback steady after tumble on dovish dudley comments.

The aussie was one of the worst performing major currencies following weak Australian retail sales data. The dollar index, which measures the greenback against a basket of currencies, remained above the 100 psychological level.

The yen was little changed after a report showed an improving outlook among Japan’s largest firms. The Bank of Japan’s Tankan survey rose for a second straight quarter to hit a one-and-a-half year high in March.  The headline index for big manufacturers’ sentiment stood at plus 12 in March compared with a plus 10 seen in the previous survey in December, but was below forecasts of a plus 14 reading.

In other data out of Japan, the final March PMI showed manufacturing activity slowed slightly to 52.4 from a final 53.3 in the previous month.

Data out of Australia showed retail sales declined 0.1% month-on-month in February, from a 0.4% increase the previous month and also came in below economists’ forecasts. The aussie / dollar plunged after the data to test the key $0.7600 level, after an earlier Asian session high of $ 0.7639.

The US dollar stabilized after tumbling against the yen on Friday on dovish comments made by New York Federal Reserve President William Dudley.  Dollar / yen bounced to an Asian session high of 111.58. The greenback came under pressure when Dudley said there was no rush to raise interest rates.

The dollar will be in focus this week as there are some important risk events coming up that could have a large impact on the currency. On Friday, the US non-farm payrolls report is due. A worse-than-expected reading would weigh on the dollar. On Thursday, a two-day meeting between China’s President Xi and US President Donald Trump will be held, with the US -China trade deficit at the top of the agenda.

The euro steadied against the dollar after Friday’s tumble to a 2-week low of $1.0650. The single currency came under pressure last week after data showed Eurozone inflation slowed. But also a dovish ECB stance and French election risk are weighing on the euro.

Sterling held onto gains made against the dollar last week and consolidated just above the key $1.2500 level in Asian trading today.

In commodities, WTI oil prices stayed close to a 3-week high reached last Friday at $50.77 a barrel, while gold pulled back towards $1245.30 an ounce.

Looking ahead to the rest of the day, markets will focus on final PMI data out of Europe, the UK and the US. Speeches by FOMC members William Dudley and Patrick Harker will also be eyed.