Forex: US Dollar May Rise Despite a Downgrade of 1Q GDP Data

2014-05-29 06:20:00

Ilya Spivak, Sr. Currency Strategist

Talking Points:

New Zealand Dollar Falls as RBNZ Rate Hike Bets Unravel
Aussie Dollar Shrugs Off Soft Data, Gains on Risk Appetite
US Dollar May Rise Despite Downgrade of 1Q GDP Figure

The US Dollar corrected broadly lower in overnight trade after hitting a two-month high in the preceding 24 hours. The New Zealand Dollar likewise came under pressure in a move that once again tracked a decline in the island nation’s benchmark 10-year bond yield, hinting recent weakness reflects eroding RBNZ interest rate hike expectations. We have entered short NZDUSD.

The Australian Dollar outperformed, shrugging off disappointing first-quarter Private Capital Expenditure data, to rise as much as 0.5 percent on average against its leading counterparts. The move tracked an overnight rally in S&P 500 futures, pointing to a swell in risk appetite as the catalyst behind gains in the sentiment-linked currency. We remain short AUDUSD.

A bare European data docket puts the spotlight turns to the second revision of first-quarter US GDP figure. Expectations point to a downgrade showing output fell 0.5 percent. Initial estimates had the economy growing 0.1 percent.

Speculation about a revised print in negative territory has been swirling around for weeks. This may take the sting out of a soft print, with traders reacting to the outcome in relative rather than absolute terms. That means a better-than-expected outcome may drive the greenback higher even if it telegraphs a significantly weaker first quarter than previously thought.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
23:50	JPY	Retail Trade (YoY) (APR)	-4.4%	-3.3%	11.0%
23:50	JPY	Retail Trade s.a. (MoM) (APR)	-13.7%	-11.7%	6.4%
23:50	JPY	Large Retailers' Sales (APR)	-6.8%	-7.1%	16.1%
1:00	AUD	HIA New Home Sales (MoM) (APR)	2.9%	-	0.2%
1:30	AUD	Private Capital Expenditure (1Q)	-4.2%	-1.9%	-4.5%