Dovish FOMC Minutes Depreciated Dollar Before Global Risk Appetite Drop Brought it Back
The USD struggled all week to string gains against majors on the back of mixed economic data. The U.S. trade balance showed a higher than forecasted deficit (-47.1 billion) and a decrease of job openings (5.45 million) put downward pressure on the USD, but the non-manufacturing PMI rose higher than anticipated to 54.5. The release of the Federal Open Market Committee (FOMC) meeting minutes shed more light on the conversations that shaped the dovish statement and logically put downward pressure on the greenback.
Thursday risk-off trading punished emerging markets and equities boosting the dollar despite previous trends. Global risk aversion pushed the Japanese yen higher versus the USD as investors sought safety. The Canadian dollar was able to offset some losses with a monster jobs report that saw the economy add 40,600 jobs; four times the estimate.
The US rally will have to pass the test of monthly retail sales to be announced on Wednesday, April 13 at 8:30 am EDT. American retail sales have remained flat despite a recovery in employment as consumers are saving more. The U.S. economy depends on consumer demand for 70 percent of economic activity and while the U.S. non farm payrolls (NFP) exceeding expectations will not change the Fed’s mind about an interest hike in April, its another sign that consumer sentiment will continue to improve.
The EUR/USD advanced 0.2 percent in the last 24 hours as the pair will end the week at 1.1398. The currency pair broke through the 1.14 price level with a high of 1.1420 as the USD continues to be hit by FOMC member comments. The rebound of oil gave a boost to the CAD. USD/CAD was down 1.023 percent as the strong employment data out of Canada combined with a rebound in oil on a weaker USD.
West Texas gained 5.757 percent as the comments from Fed Chair dispelled fears of the American economy falling into a recession. The stability that came from the Organization of the Petroleum Exporting Countries (OPEC) and Russia oil output freeze agreement to be discussed on April 17 at the Doha summit combined with the reassurances from the Fed have crude prices rising after lower inventories in the U.S. reporters on Wednesday. WTI is trading at $38.83 with a daily high of $39.11. On a weekly basis crude had a massive week with 8.86 percent gain for WTI and 8.58 percent for Brent crude. Comments from Saudi authorities had raised doubts about an oil output deal reaching an agreement in Doha, but positive signs of potential oil demand growth had eased those fears.
Gold has had a volatile week as there market entered a risk off phase mid week. The yellow metal advanced 1.5 percent on a weekly basis trading at $1,241. A weaker dollar left the precious metal in a good position to advance after the minutes from the dovish FOMC statement in March. Silver also had a positive week gaining 2.108 percent versus the USD. Silver last traded at $15.3684.
Retail Sales Hurdle Next for USD
A series of dovish comments and the FOMC statement have reduced the forecasted number of rate hikes by the U.S. Federal Reserve in 2016 which in turn have weekend the U.S. currency against majors. The monetary policy divergence that was counted on after the much awaited December interest rate hike has been if not derailed then paused. A more patient Fed is willing to let inflation run hot and wait for the economy to force a rate hike, rather than anticipating a recovery. The retail sales and the report minus the volatile auto data will be released on Wednesday, April 13 at 8:30 am EDT. Core retail data is forecasted to come in at 0.4 percent after this economic release has been near zero since January. Auto accounts for 20% of retail sales and the full figure is expected to gain 0.1 percent.
Bank of Canada and Bank of England To Hold and Talk
No changes are expected from the Bank of Canada (BoC) and the Bank of England (BoE) next week. The BoC rhetoric will be reviewed to look for insights on when the economy will feel the impact of the federal budget announced last month. Optimistic U.S. growth rhetoric from the Fed and a rebound in oil prices has the loonie gaining which should please the central bank after the rapid decline in January. The employment data was a huge surprise as it blew past the forecast and has restored some confidence on the non-resource based part of the economy.
The BoE will have a hard time voicing their opinion on Brexit for fear of coming as biased towards either side. The BoE will have to live with the aftermath no matter the June referendum vote and has said as much so far. The pound has depreciated with the rise of uncertainty as the data gets closer and the media plays it as a too close to call showdown. The market has already discounted a rate hike from the Old Lady in 2016 as fundamentals have stalled and headwinds at home and abroad have not disappeared if anything they are more adverse.
Forex Market events to watch this week:
Tuesday, April 12
4:30am GBP CPI y/y
Tentative CNY Trade Balance
Wednesday, April 13
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m 0.3% -0.2%
8:30am USD Retail Sales m/m
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
9:30pm AUD Employment Change
Thursday, April 14
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Unemployment Claims
10:00pm CNY GDP q/y
10:00pm CNY Industrial Production y/y
Friday, April 15
8:30am CAD Manufacturing Sales m/m
10:00am USD Prelim UoM Consumer Sentiment