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US Dollar May Retreat as ADP, ISM Data Wighs on Fed Policy Outlook

US Dollar May Retreat as ADP, ISM Data Wighs on Fed Policy Outlook

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar May Fall as ADP, ISM Data Undermines Fed Outlook
  • NZ FinMin English Comments Send Kiwi Dollar Lower Overnight
  • Access Real-Time FX Markets Analysis with DailyFX on Demand

The US Dollar continued to advance higher in overnight trade, with prices on pace to deliver a fifth consecutive day on the upside. The move tracked a pickup in front-end US Treasury bond yields, pointing to firming monetary policy expectations as the catalyst. From here, Fed policy speculation will be informed by the March editions of the ADP Employment report and the ISM Manufacturing reading in the hours ahead. The former is due to show private-sector hiring accelerated compared with the prior month while the latter reflects a slight slow-down in factory-sector activity growth.

US economic news-flow has increasingly underperformed relative to consensus forecasts since late December. This warns that analysts may be over-estimating the vigor of the world’s largest economy, opening the door for downside surprises. Soft outcomes may push out investors’ baseline scenario for when the rate-setting FOMC committee begins raising interest rates, undermining support for the greenback and sending it downward. As it stands, Fed Funds futures price in the first post-QE increase in target range for the baseline lending rate in October.

The New Zealand Dollar underperformed, falling as much as 0.8 percent on average against its leading counterparts. The move lower followed comments from New Zealand Finance Minister Bill English, who said the Kiwi’s strength represents a challenge for exporters and dismissed the prospect of its parity with the Aussie, saying he will “believe it when he sees it”. It is unclear why the markets assigned such significance to relatively vague commentary seemingly devoid of actual policy guidance.

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Asia Session

GMTCCYEVENTACTEXPPREV
22:30AUDAiG Perf of Mfg Index (MAR)46.3-45.4
23:00AUDCoreLogic RP Data House Px (MoM) (MAR)1.4%-0.3%
23:00NZDQV House Prices (YoY) (MAR)7.7%-6.4%
23:50JPYTankan Large Mfg Index (1Q)121412
23:50JPYTankan Large Mfg Outlook (1Q)10169
23:50JPYTankan Large Non-Mfg Index (1Q)191717
23:50JPYTankan Large Non-Mfg Outlook (1Q)171816
23:50JPYTankan Large All Industry Capex (1Q)-1.2%0.5%8.7%
23:50JPYTankan Small Mfg Index (1Q)141
23:50JPYTankan Small Mfg Outlook (1Q)04-5
23:50JPYTankan Small Non-Mfg Index (1Q)31-1
23:50JPYTankan Small Non-Mfg Outlook (1Q)-1-1-4
0:30AUDBuilding Approvals (MoM) (FEB)-3.2%-4.0%5.9%
0:30AUDBuilding Approvals (YoY) (FEB)14.3%10.7%9.2%
1:00CNYManufacturing PMI (MAR)50.149.749.9
1:00CNYNon-manufacturing PMI (MAR)53.7-53.9
1:35JPYMarkit/JMMA Manufacturing PMI (MAR F)50.3-50.4
1:45CNYHSBC Manufacturing PMI (MAR F)49.649.349.2
5:00JPYVehicle Sales (YoY) (MAR)-13.1%--14.2%
5:30AUDCommodity Index (MAR)83.7-86.1
5:30AUDCommodity Index (YoY) (MAR)-19.7%--21.6%

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
7:30CHFManufacturing PMI (MAR)47.9 (A)47.3Low
7:45EURMarkit/ADACI Italy Mfg PMI (MAR)53.3 (A)51.9Low
7:50EURMarkit France Mfg PMI (MAR F)48.8 (A)48.2Medium
7:55EURMarkit/BME Germany Mfg PMI (MAR F)52.8 (A)52.4Medium
8:00EURMarkit Eurozone Mfg PMI (MAR F)52.2 (A)51.9Medium
8:30GBPMarkit UK PMI Mfg SA (MAR)54.4 (A)54.0High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.04991.06311.06811.07631.08131.08951.1027
GBPUSD1.45851.47001.47591.48151.48741.49301.5045

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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