Week in Review: Dollar lifted on wages and manufacturing

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It was another week of a roller coaster ride for the US Dollar. The much-anticipated speech from Federal Reserve Chairwoman Janet Yellen saw some strong dovish views which sent the US Dollar plunging across the board to close the first quarter of 2016 with one of the strongest losses were ever seen in the US Dollar Index in a decade. Citing concerns about inflation and the global uncertainty Ms. Yellen said that the Fed would take a cautious approach to hiking interest rates. The comments follow the FOMC’s statement where the Fed lowered its rate hike forecasts from four to two. Furthermore, the Chairwoman’s comments also starkly contrasted some of the hawks in the FOMC. EURUSD rallied to a 5-month high on a weaker US Dollar this week. However, by Friday economic data was positive as the US average wages grew at a pace of 2.30% compared to a year ago, beating forecasts of 2.20% increase. While the US unemployment rate increased to 5.0%, it was offset by the participation rate which increased to 63.0%. ISM Manufacturing also saw a rebound rising from 49.5 in February to 51.8 in March, reflecting a broad pickup in manufacturing globally.

Citing concerns about inflation and the global uncertainty Ms. Yellen said that the Fed would take a cautious approach to hiking interest rates. The comments follow the FOMC’s statement where the Fed lowered its rate hike forecasts from four to two. Furthermore, the Chairwoman’s comments also starkly contrasted some of the hawks in the FOMC. EURUSD rallied to a 5-month high on a weaker US Dollar this week. However, by Friday economic data was positive as the US average wages grew at a pace of 2.30% compared to a year ago, beating forecasts of 2.20% increase. While the US unemployment rate increased to 5.0%, it was offset by the participation rate which increased to 63.0%. ISM Manufacturing also saw a rebound rising from 49.5 in February to 51.8 in March, reflecting a broad pickup in manufacturing globally.

Earlier in the day China’s manufacturing PMI data saw a rebound as both the PMI readings showed an increase to 5.02 while the Caixin manufacturing PMI increased from 48.0 in February to 49.7 in March.

The Japanese Yen continued to come under pressure with economic data showing that Japan might have dipped into a recession. The BoJ’s tankan manufacturing and non-manufacturing surveys saw a weaker than expected increase. Tankan manufacturing fell from 12 in the fourth quarter of 2015 to 6 in the first quarter while non-manufacturing was also weaker slipping from 25 to 22.

The British Pound was yet again the weaker currency among the lot only next to the US Dollar. Sterling posted strong declines as manufacturing PMI released for March showed a slower than expected increase of 51.0 below forecasts of 51.4. While the GBPUSD managed to seek out some gains on an upwardly revised GDP data in the fourth quarter of 2015, the gains were short-lived as the Sterling quickly erased the gains.

With a weaker Greenback, the Aussie and the Kiwi posted strong gains over the week despite the lack of any major fundamentals to go by. The RBA’s meeting is up early next week which will be a major event risk for the AUDUSD, which has seen strong gains over the first quarter.

Gold prices were choppy over the week. While the precious metal managed to rally on dovish comments from Janet Yellen, the gains were short-lived as Gold fell on better NFP print and ISM manufacturing data. At the time of writing, Gold was seen trading at $1210 an ounce.

Economic events this week

  • US Core PCE Price Index m/m 0.10% vs. 0.20%
  • US Personal spending m/m 0.10% vs. 0.20%
  • US Pending home sales 3.50% vs. 1.20%
  • Japan household spending y/y 1.20% vs. -1.80%
  • Japan unemployment rate 3.30% vs. 3.20%
  • US CB Consumer confidence 96.2 vs. 93.90
  • Fed Chair Yellen speech
  • Japan preliminary industrial production m/m -6.20% vs. -5.80%
  • Germany preliminary CPI m/m 0.80% vs. 0.60%
  • US ADP Private payrolls 200k vs. 195k
  • US Crude Oil inventories 2.3Mn vs. 3.1Mn
  • Japan housing starts y/y 7.80% vs. -2.20%
  • Germany retail sales m/m -0.40% vs. 0.30%
  • French Preliminary CPI m/m 0.70% vs. 0.50%
  • UK Current account -32.7 billion vs. -21.1bn
  • UK Final GDP Q4, 2015 0.60% vs. 0.50%
  • Eurozone CPI flash estimates y/y -0.10% vs. -0.10%; Core CPI 1.0% vs. 0.90%
  • Canada GDP m/m 0.60% vs. 0.30%
  • Chicago PMI 53.6 vs. 50.5
  • Japan Tankan manufacturing index 6 vs. 8; Tankan non-manufacturing index 22 vs. 24
  • China Manufacturing PMI 50.2 vs. 49.3
  • China Caixin manufacturing PMI 49.7 vs. 48.3
  • Japan final manufacturing PMI 49.1 vs. 49.1
  • Eurozone final manufacturing PMI 51.6 vs. 51.4
  • UK Manufacturing PMI 51.0 vs. 51.4
  • US nonfarm payroll change 215k vs. 206k
  • US average hourly earnings m/m 0.30% vs. 0.20%
  • US unemployment rate 5.0% vs. 4.90%
  • US ISM manufacturing PMI 51.8 vs. 50.8
  • Canada RBC manufacturing PMI 51.5 vs. 49.4 previously

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