With the end of the first quarter of 2017, the dollar finally bid farewell to a difficult quarter. Even the Fed’s rate hike failed to stop the dollar’s ​​decline, which fell about 5% against the yen and the Australian dollar.
Kathy Lien, managing director of BK Asset Management, wrote on Friday (March 31) that US policymakers did not show that the urgency of raising interest rates in June after the rate hike in March was the main reason for the weaker dollar, but the medical bill failed. Uncertainty in tax reforms and mixed data have also exacerbated this decline.
On Friday, according to the latest US core PCE price index in February, personal income and expenditure growth slowed in February, and inflationary pressures eased. Accelerated manufacturing activity in Chicago, coupled with healthier data released Monday through Thursday, helped the USD/JPY climb this week. These include the final revision of GDP, the narrowing of the trade deficit and the sharp rise in the Consumer Confidence Index of the Conference. In addition, it is worth pointing out that the dollar has successfully rid itself of the negative news that President Trump is studying the method of “punishing the currency manipulators†to counter unfair trade. These initiatives are designed to force other countries to increase the value of their currencies against the dollar.
Looking ahead, USD/JPY resistance is at 112 and support at 111. Next week, the US dollar will usher in an important test, and the ISM report, the latest FOMC meeting minutes and non-agricultural reports will be released. If the minutes reaffirm that the Fed is not eager to raise interest rates, the dollar may retreat, but if the minutes release a generally optimistic tone, then the pair may jump to 113. In view of this, the non-agricultural report is the most important data, as economists are seeking signs of a slowdown in employment growth. If they are correct, then it will "block" the dollar, which will cause the dollar to weaken in the next few weeks.
The British government officially triggered Article 50 of the Lisbon Treaty this week. The EU responded that the pound did not fall sharply. On the contrary, the performance of the UK financial market should be orderly, with GBP/USD closing this week within the 50-point range of the opening price at the beginning of the week.
Mid-week volatility, but given the historical importance of this week's progress, the level of volatility could have been more intense. We know that this day will come, but its inevitability has not reduced its importance. The UK is about to leave the EU, and investors, businesses and individuals will bear the consequences. To date, the pain has been minimized and the GBP/USD has recovered some of the recent declines.
On Friday morning, the EU responded to 50 articles. After Brexit, they gave Britain a year to reach a trade agreement, provided they comply with their financial commitments. This is not the worst situation, because they are willing to discuss trade, but it is not the best case, because the UK needs to “get enough progress†on the liquidation of the Brexit clause, after they have refused to pay. Scotland also formally requested an independent referendum. Although we believe that all these developments are bad for the pound, the pound is currently in good shape and we must respect this price trend. Sterling traders are easily dealing with 50 triggers, and the EU's response is expected to be a Scottish referendum request. If this situation continues, the GBP/USD may climb to 1.26. Next week's focus will be redirected to the UK's fundamentals, and the PMI data will be released in March. Recently, hawkish dissidents within the Bank of England have led many to believe that the economy has continued to improve last month.
The euro also sent a tough week. Although the latest data shows that the number of unemployed people in Germany has decreased by more than 30,000, the UK retail sales have grown strongly, but inflation is heading in the wrong direction, and the CPI growth rate has slowed from 2% to 1.5%. Many ECB officials have previously talked about the possibility of raising interest rates, but we believe it will be difficult to start raising interest rates before inflation begins to rise.
France's first round of presidential elections will be the key focus of April. At present, Mark Long seems to be defeating Le Pen. With the gradual approaching on April 23, the sensitivity of the euro to the polls will increase significantly. At the same time, the latest minutes of the ECB meeting, German industrial production and trade data with the United States will drive the euro/dollar movement. Technically, the EUR/USD appears to be weak, but there is also support around 1.0650.
At the same time, the performance of commodity currencies has been inconsistent in the past week. The Australian dollar was steady this week (although its strong performance in the first quarter), but the New Zealand dollar weakened while the Canadian dollar strengthened.
The Australian dollar is supported by strong Chinese data, which was boosted by accelerated economic growth in Canada and higher oil prices. In January, Canada's economic growth rate rose to 0.6%, making the annual rate increase from 2.1% to 2.3%.
The Australian dollar and Canadian dollar will continue to receive attention, and the Australian Federal Reserve will announce its policy decision next week, and Canada will publish employment and trade data. Corporate activity in Australia has seen a slowdown since the last monetary policy meeting, but upcoming retail sales data and PMI data will make the situation clearer. Iron ore prices have also fallen, which means that the Reserve Bank of Australia will be less optimistic about April. If they are still positive from these reports, the Australian dollar will continue to perform strongly. However, if they finally admit that the strength is not so bright, then the AUD/USD may be off the highs. Employment in Canada was very strong in February and may fall back in March.
New Zealand is not expected to have a major economic report. In addition to the possibility of monthly/quarterly liquidity, the reason for the weak performance of the New Zealand dollar against other currencies in the past week is unclear.
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