Currency markets seek direction

Currency markets content to watch from the sidelines

Currency markets have moved into range-trading mode ahead of tonight’s US data, with US bond yields almost unchanged overnight, and no direction to be gleaned from equity markets either. The dollar index eased slightly by 0.11% overnight but has risen 0.12% to 92.25 this morning, leaving us where we started yesterday.

Unsurprisingly, that has left developed market currencies almost unchanged as well, with EUR/USD steady at 1.1890, GBP/USD at 1.3735, and USD/JPY at 109.65. Key levels remain for EUR/USD at 1.1700 and 1.1925, 1.3675 and 1.3780 for GBP/USD, and 109.00 and 110.00 for USD/JPY.

The risk appetite indicating Australian and New Zealand dollars edged slightly lower overnight, hinting that currency markets have not completely discounted the threat of firmer US yields. AUD/USD and NZD/USD are hovering just above support at 0.7590 and 0.7000, respectively.

USD/CNY remains marooned around 6.5500 after a quiet overnight session for the DM space in Asia. A holiday in Thailand gives the baht some Covid-19 respite, but the Indonesian rupiah and Korean won both held onto yesterday’s losses.

The Indian rupee continues to be Asia’s vulnerable standout. USD/INR rose above 75.00 yesterday to 75.20 and remains just below that level at 75.10 today. The expected rise of March WPI to near 6.0% tomorrow will likely cause more weakness for a currency already suffering a QE/Covid-19 hangover.

Looking ahead, investors will be hoping to pick up some clues about the Fed’s plans, as we hear from the usual plethora of Federal Reserve Governors during the day. However, most attention will be focused on US inflation releases. US Core and Headline Inflation for March YoY are expected to rise by 1.50% and 2.50%, respectively. However, the MoM data is arguably more critical, with March encompassing the economy’s initial reopening and some of those stimulus cheques being spent. March Core Inflation MoM is expected to rise by 0.20%, with the headline inflation rising by 0.50%.

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