The dollar lowers GDP, next week is key

Daily Review of the Foreign Exchange Market on April 24, 2019

Kathy Lien, Managing Director, Foreign Exchange Strategy for BK Asset Management

Trade rose against most major currencies this week as a result of the combination of stronger US data and higher equity values. Investors are attracted by record US equity moves and their confidence is being encouraged by better data and low interest rates. According to Friday, the US economy grew by 3.2% in the first quarter, which was significantly higher than forecast 2.3% of the market. While trade and inventory absorb most of the credit, consumer spending also picked up in March. With this in mind, the greenback was removed from the report as investors worried that a drop in price growth would hurt the Fed's optimism.

Wednesday is one of the biggest risks next week. Everyone is wondering whether the Fed will recognize the data improvements as a sign that the previous slowdown is temporary or if it will forget them in favor of low inflation and sluggish global growth. Based on Friday's price action, investors think it will be the last. At the Fed meeting last March, the crash collapsed after the dot plot forecast revealing that the majority of US policymakers no longer believe that a rate hike is needed this year. At the time, Fed Chairman Powell had said that the economy was well-placed, but trade negotiations, Brexit, European tariffs, double deficits and weaker global growth presented a serious risk. Until some of these uncertainties are lifted, he believes "the time has come for the Fed to be patient, look and wait."

Since then, the growth of employment and inflation have increased. The Fed will be relieved to see these improvements, but the dollar will only appreciate if it indicates that the market's expectations of management are misplaced. A 67% chance of easing this year is expected – but no Fed chairman has referred to rate cuts while many insist that if the data improves, a further rise could be justified this year. So if Powell downplays its easing, the dollar will continue to rise, otherwise investors will move on. With record highs of 50 this month, steady job growth is expected due to the strength of the job market. The next 10 days of vacation in Japan will reduce liquidity, which could increase volatility.

Meanwhile, Friday's best-performing currency was on. We are beginning to see the signs of a potential NZD trough, thanks to a stronger than expected level. New Zealand's trade surplus reached $ 922 million in March, seven times higher than expected. Exports peaked due to strong demand for dairy products from China. If this demand continues, the RBNZ will not have to consider loosening.